This year is set to see a new CEO commence work at BT Group plc (LON:BT.A) (BT.A.L). Following Gavin Patterson’s resignation, the company is searching for a replacement who is expected to start before the end of the year.
This could prompt a period of uncertainty for the business. A new CEO may look to change elements, or even large parts, of the recent strategy switch that was announced shortly before Gavin Patterson’s resignation.
However, investors may also react positively, as they have done since the news of a new CEO was released. Since then the BT share price has risen by around 10%, and this suggests that the stock market may be looking ahead to a period of potentially improving performance for the business.
There are, of course, a number of risks facing the business. EPS is forecast to fall in each of the next two years, while the company has a large pension liability as well as facing increasing competition in areas such as mobile and pay-tv. Therefore, investor sentiment may not continue to improve at the same rate as it has done in recent weeks.
In my view, a period of uncertainty could remain in place even upon the arrival of a new CEO. From my experience, a strategy change of some sort is likely, as a new CEO will want to stamp their own mark upon the business.
However, at the same time, I believe that the current strategy could offer improving financial performance in the long run. BT’s focus on cost reduction and customer service may lead to stronger operational performance, as well as an improving bottom line.
Therefore, while there could be volatility and uncertainty ahead, I’m optimistic about the stock’s future prospects. On a PE ratio of around 9, I believe the market is overly-pessimistic, and a higher valuation could be merited given its turnaround potential.