Following the fall in the share price of BT Group plc (LON:BT.A) (BT.A.L) since the start of the year, it now has a lower valuation. It has a prospective P/E of 10.7, which I believe indicates it offers good value for money when compared to TMT sector peers such as Vodafone Group plc (LON:VOD) (VOD.L).
That said, BT faces a relatively risky couple of years in my view. Its Italian operations have posed some challenges of late and prompted the announcement of a profit warning earlier this year. While the company may meet its forecasts, there is a risk of further difficulties in the short run.
There is also increasing competition in the quad play space. Vodafone, BT and a number of other TMT companies have sought to diversify their product base in order to attract new customers. In my view, BT’s strategy of acquiring EE puts it in a dominant position which may allow it to register increasing cross-selling opportunities compared to its peers.
BT’s investment in sports rights may also improve its differentiation when compared to other offerings. This could support higher prices as well as mean more sales in future. With Openreach’s future now decided, BT may have more scope to focus on its core operations over the long run.
Vodafone also has growth potential in my opinion. I think the partnerships it has signed of late and the investment it has made in its infrastructure could pay off in the long run. Therefore, on a risk to reward basis it is my preferred option within the TMT space. However, I’m also upbeat about the prospects for the BT share price, as I think it is relatively cheap and the company has a good growth strategy.
Therefore, BT’s low valuation could be the catalyst which allows its share price to outperform that of Vodafone. However, I’d still rather own Vodafone due to what I believe to be lower risks in the long run.