Having risen by over 50p per share in the last six months, it appears as though investor sentiment towards BT Group plc (LON:BT.A) (BT.A.L) has improved significantly. Interestingly, the company’s share price rise has occurred at the same time as the FTSE 100 has experienced a significant decline. As a result, the telecoms company has bucked the wider trend among large-caps.
In my view, though, investors are still adopting a cautious stance towards the stock. It has a P/E ratio of around 10 and a dividend yield of approximately 6%. This latter figure is 50% higher than the FTSE 100’s yield at the moment, and indicates to me that it may offer a large margin of safety compared to its large-cap peers.
Of course, I believe that BT could face an uncertain future. It is due to post a fall in EPS of 5% this year. Next year, the stock is expected to deliver a continued fall in EPS which, if realised, would take its declining bottom line to five years in a row.
As well as this, the company has a new CEO starting work in the New Year at a time when it is already seeking to implement a significant strategy change. Just last quarter the company reported that 2,000 roles had been made redundant. Given the scale and speed of change, I wouldn’t be surprised if investors remain cautious about the near-term prospects for the business.
In the long run, I feel that the BT share price could post a sound recovery. I believe that it has a strong position in the quad play sector, and is finding the right strategy to make its business model work after a period of expansion and investment.
Although there could be further volatility and disappointment ahead, I believe that investors may remain relatively cautious about the stock until its financial prospects improve. Therefore, while it has made gains in recent months, I think that it may take time to post a turnaround.