Will BT Group plc continue to lag the FTSE 100?

Could BT Group plc (LON:BT.A) (BT.A.L) shares keep underperforming the FTSE 100 (INDEXFTSE:UKX)?

BT Group plc
BT Group plc

In 2018, the BT Group plc (LON:BT.A) (BT.A.L) share price has fallen by around 13%. Even though the FTSE 100 has endured a highly challenging year, it is down by 8% in the same time period.

I wouldn’t be surprised if the company’s underperformance of the index continues in the near term. Investor sentiment may have improved in the last few weeks, but investors seem to be cautious about the stock’s prospects.

Given that it has delivered three successive years of falling EPS and is expected to do likewise this year and next year, the near-term outlook for the company remains challenging. The quad play sector remains competitive, and BT has not yet been able to make its current strategy work. It has spent £billions on sports rights and its pay-tv offering, as well as the acquisition of EE. Yet, it is still lagging industry peers when it comes to financial performance.

Now, though, there is likely to be a significant change ahead in my view. A new CEO starts work in the New Year, while a refreshed strategy has the potential to cut costs and refocus the business on areas such as its consumer offering. These changes could lead to a stronger business further down the line, although they may take time to have their desired impact.

Given that the BT share price has a P/E ratio of around 9, I think that the company could offer a margin of safety at the moment. Investors seem to be expecting further difficulties from the company, and this may improve its risk to reward ratio from a long-term investment perspective.

Therefore, while its performance this year has been disappointing and it could continue to underperform the FTSE 100 in the short run, over a long-term timeframe I’m cautiously optimistic about the chances of a recovery.

About Robert Stephens 5151 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page