While the BT Group plc (LON:BT.A) (BT.A.L) share price has risen from 203p in May 2018 to its current level of 237p, I still think that it is relatively cheap. The stock has a P/E ratio of under 10, which suggests to me that it may include a margin of safety at the moment.
Investors appear to be factoring in potential difficulties for the business in the near term. That’s to be expected in my opinion, with it being a time of significant change for the telecoms company.
For instance, it is in the process of implementing a major reduction in staff numbers as it seeks to become increasingly efficient at a time when the quad play industry is becoming increasingly competitive. And with a new CEO set to start work in the short run, I believe that investors are maintaining a cautious stance, which is understandable given its poor financial performance of recent years.
That disappointing financial performance is expected to continue in the current year and into next year. EPS is forecast to fall, and this could keep the BT share price pegged back to some degree in my opinion. At the same time, it continues to face risks such as a high pension liability and a balance sheet which includes a significant amount of debt. They could further hold back its rerating potential in my view.
Of course, a low valuation alongside what I view as a sound strategy could help to push the company’s valuation higher. A new CEO may also be able to improve further on its strategy, which could lead to stronger EPS growth in future years. As a result, I’m optimistic about BT’s long-term prospects, but feel that further uncertainty may be ahead in the near term – particularly given the recent performance of the wider FTSE 100.