Why I’m optimistic about BT shares this year

BT Group plc (LON:BT.A) (BT.A.L) could perform relatively well in my view

BT Group plc
BT Group plc

Although the BT Group plc (LON:BT.A) (BT.A.L) share price has dropped 15% since the start of the year, I’m upbeat about its recovery potential.

A key reason for this is the decision to split Openreach from BT. In my opinion, this had been hanging over the company for some time and had created at least some uncertainty for investors. While it may take time to split and there may be some initial challenges, I feel the additional capital which can be spent on the core BT business may help its share price to recover.

I also feel the BT strategy of acquisition and investment is the right one to pursue in the current climate. The quad play industry is becoming more competitive and other companies are gradually diversifying their product offerings. This means it may become more difficult to differentiate a company’s offering versus rivals. That’s why I think BT’s decision to invest heavily in its pay-tv offering and especially in sports rights could help to boost customer loyalty and its overall financial performance.

Likewise, the investment it has made in acquiring EE may be a good move. It is the UK’s largest mobile network and immediately gives BT a dominant position within the quad play market. The synergies offered by the deal may improve the company’s financial performance. I also believe the deal means BT avoids being left behind in a fast-moving quad play market.

While there are risks ahead for BT, such as the Italian investigation outcome and its relatively high debt levels, I feel its valuation takes this into account. A P/E of approximately 10 shows its shares are not overvalued when compared to other stocks in the TMT sector. Therefore, 2017 may have been a disappointing year so far for BT investors, but I believe its share price performance could improve over the medium term.

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