BT Group plc: are investors right to be cautious about its future prospects?

Could BT Group plc (LON:BT.A) (BT.A.L) offer stronger financial prospects than the stock market is anticipating?

BT Group plc
BT Group plc

Although the BT Group plc (LON:BT.A) (BT.A.L) share price has gained around 50p after reaching a low of 203p in April, the company still has a relatively low P/E ratio.

In fact, it has a P/E ratio of around 10 at the moment. Even though the FTSE 100 has lost around 10% of its value since May, the index still trades at a relatively high level. As a result, a stock having a P/E ratio that is barely in the double-digits is relatively unusual in my view.

To my mind, the company’s rating suggests that investors remain cautious about its prospects. I feel that they are right to have this view, since the outlook for the BT share price could be relatively volatile.

For instance, the business is due to report falling EPS in the next two financial years. This would make it five years in a row of declining earnings, and would suggest that its aggressive growth strategy is not working as planned. It has ploughed £billions into becoming a quad play operator, with pay-tv and EE causing costs to increase in the near term.

In spite of this investment, the company does not yet appear to have found the right strategy according to its financial performance.

However, I think that the revised strategy put in place earlier this year could lead to improving performance for the business. It is reducing headcount, which could help to make the company more efficient. Alongside a new CEO and a focus on customer satisfaction, this could provide a catalyst for the BT share price over the long run in my view.

Clearly, there are risks and uncertainties facing the business. And in the near term I wouldn’t be surprised if the company’s shares come under pressure. But in the long run I’m optimistic about the prospects of a successful turnaround, given the company’s current valuation.

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