The FTSE 100 communications giant BT Group (LSE:BT-A) is in a funk, what with its disappointing results. Yet, I believe that investing in this company is a good idea. As contrarian as this call sounds, it’s based on underlying developments that are well worth considering…
Rising share price
Investor sentiment has already started turning, with share prices rising all through March. The price is now slightly higher than last year’s average but I think it could still have much further to go. This is based on two counts: it is still over 12% lower than the maximum level of the past year, and is 25% lower than the five-year or longer-term average.
Optimistic medium-term forecasts
I am of the view that a positive medium-term outlook will drive the increase, even though the short-term looks challenged. Consider the last result update in January this year, which saw a decline in both revenue and profits. The company’s outlook for the full year 2018-19 isn’t optimistic either, with expectations of a slight dip in these performance indicators.
However, the fine print of the results shows the situation isn’t quite as bad as it seems. While revenues have seen a broad-based decline across segments, profits are down on account largely due to Openreach, the telecom infrastructure providing arm. In so far as this can be seen as a tactical move to acquire a higher market share by taking a hit on prices now, it’s a short-term pain for gains over time.
Future opportunities in the telecom sector in the form of 5G networks should also hold it in good stead. City analysts are also far from bearish on BT, with a number of them putting a ‘buy’ and even an ‘outperform’ on the stock.
Resolving management issues
To be clear, if the underperformance was purely due to poor management decisions or operational issues, I wouldn’t suggest touching it with a barge pole. But in so far as this issue existed, it has already been taken care of. A new CEO, Philip Jansen, took charge in February this year after investors expressed their disappointment at his predecessor’s performance last year.
No takeover in sight
2019 seems to have started on a good note as the potential takeover threat from Germany’s Deutsche Telekom is also all but over. When the latter sold EE to BT in 2015, it acquired a 12% stake in the company with a four-year lock-in. With this period now over and no further acquisitive moves in sight, BT has been potentially saved from plunging into further uncertainty.
In summary, the company is slowly but surely making its way through the woods. It isn’t a thumping buy, since it still has challenges to deal with, but I wouldn’t want to miss putting in £1,000 in BT when the chips are down.
