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BT Group plc vs Vodafone Group plc: which is the better telecoms pick?

Photo: Albert Bridge. Cropped. Licence: http://creativecommons.org/licenses/by-sa/2.0/

It’s pretty fair to say that telecommunications titans BT (LSE: BT-A) and Vodafone Group (LSE: VOD) are hardly flavour of the month right now. The former has seen its share price collapse 29% during the past 12 months, a series of shocking market updates in January sending it to its cheapest since summer 2013.

And while Vodafone has performed more resolutely in 2017, a 10% erosion in its share value over the last year is hardly much to sing about either. Regardless of recent selling activity however, I believe one of these stocks remains a compelling pick. But which is it?

Too many troubles?

Well BT undeniably faces a wide array of troubles which could explode in the months ahead.

Stock pickers shot to the exits in January after BT underestimated the scale of accounting mis-practices at its Italian unit, the company upgrading its estimates of the size of the subsequent writedowns to £530m from £145m in November.

Following the news, BT announced that it was “conducting a broader review of financial processes, systems and controls across the group.” So holders of BT stock should be prepared for a fresh spate of bad news, possibly as soon as full-year results in late May.

However, further news surrounding the firm’s inadequate accounting controls is not the only possible pitfall for BT’s share price next month. The company noted in January that it faces “a more challenging outlook in the UK public sector and international corporate markets,” and as a result anticipated flat underlying revenue growth for the year ending March 2017.

Meanwhile, the bunting that was broken out following Ofcom’s decision not to separate BT from its Openreach division in March seemed to be a tad premature as fresh headaches at its infrastructure division have emerged. Indeed, the regulator late last month decided to slash the amount Openreach charges BT’s competitors to operate on its super-fast broadband network.

Make the connection

The news has hardly been electrifying at Vodafone in recent months, either. The mobile operator announced in February that sales growth in its key regions has cooled considerably more recently. During the three months to December, organic service revenues in its core European marketplace rose 0.7%, down from 1% in the prior quarter.

And in its Africa, Middle East and Asia Pacific (or AMAP) territory, the red-liveried carrier saw organic service sales rise 3.9%, chiefly as its rivals in the key Indian marketplace stepped up their game. This compares with the 7.1% advance enjoyed in the previous three months.

Despite these current bumps in the road, I believe Vodafone’s vast global presence should pave the way for resplendent returns in the long term.

Through its Project Spring organic investment scheme, the company has ploughed billions into improving its voice and data services and thus keeping subscriber numbers rising. And Vodafone has plenty of financial firepower to power the M&A train and bite back against its competitors, as illustrated by its merger with India’s Idea this month.

So while BT deals on a conventionally-cheap forward P/E ratio of 10.9 times, I reckon Vodafone is a superior pick despite its heady earnings multiple of 30.4 times.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.