Is BT Group one of the FTSE 100’s greatest value shares?

BT’s share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one of the best value shares on London’s stock market?

| More on:
Middle-aged Caucasian woman deep in thought while looking out of the window

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

BT Group (LSE:BT-A) has been one of the FTSE 100‘s best performers in May. Yet on paper, it still looks like one of the index’s best value shares.

At 126.3p per share, the telecoms giant now trades on a forward price-to-earnings (P/E) ratio of 6.7 times. This is far below the Footsie average of 11 times.

Meanwhile, the prospective dividend yield on BT shares stands at 6.1%. This trumps the UK blue-chip average of 3.5% by a huge margin.

To crown things off, the firm’s price-to-book (P/B) ratio is currently 0.9. At below 1, this suggests the company trades at a discount to the value of its assets.

BT's price-to-book (P/B) value.
Created with TradingView

Mixed results

Of course, the FTSE 100’s made up of a variety of different shares spanning a variety of sectors.

Given current problems in the telecoms sector — from the pressures created by high interest rates and tough economic conditions, to large capex bills and regulatory uncertainty — it’s a good idea to compare how BT’s share price compares to that of its major industry peers.

CompanyForward P/E ratio
BT Group 6.7 times
 Vodafone Group 10.2 times
 AT&T Inc 7.9 times
 Verizon Communications Inc 8.6 times
 Deutsche Telekom AG 12 times
 Orange SA 13.5 times
 Telefonica SA 9.9 times

As you can see from the table, the firm pleasingly offers industry-beating value relative to earnings. Its forward P/E ratio of below 7 times is beneath an average of 9.8 times for its peer group. It’s also the smallest among this cluster of shares.

That said, BT’s shares don’t look as attractive from a value perspective when it comes to dividends. As the chart below shows, it has the fifth largest yield, behind (in descending order) Vodafone, Verizon, Orange and AT&T.

Dividend yields across the telecoms sector.
Created with TradingView

Having said that, the 6.1% forward dividend yield is pretty close to the 6.5% sector average.

The verdict

All things considered, I don’t believe BT shares provide attractive enough value for me to invest. Some shares carry low valuations based on their poor growth prospects and high risk profiles. It’s a description I think fits this FTSE 100 stock perfectly.

On the positive side, telecoms companies should receive a boost as our lives become increasingly digitalised. BT’s huge fibre-laying programme could put it in a strong position to capitalise on this opportunity too.

But as well as facing industry pressures, the firm’s focus on the weak UK economy leaves it in danger of underperforming its internationally focused peers. This certainly explains why it trades on a lower P/E ratio to those other companies I’ve mentioned.

Latest financials showed revenues rise just 1% in the 12 months to March. Profits also plummeted 31% due to a writedown in the value of the Business division.

With Britain facing a prolonged period of weak growth, there’s a good chance BT’s share price could remain under pressure. So while it looks cheap on paper, I’d much rather buy other FTSE 100 value stocks today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. 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.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

£9,000 in savings? That could become passive income of £19,175 a year

It's possible to invest affordable sums of money into building a big passive income stream. Here's how I'd go about…

Read more »

Black father and two young daughters dancing at home
Investing Articles

Legal & General shares: a once-in-a-decade passive income opportunity?

Is a dividend yield at its highest level in a decade, combined with a strong record of increasing payouts, a…

Read more »

Investing Articles

With a 7% yield and 4.1 P/E, is this the best passive income stock on the FTSE 350?

Millions of Britons invest for a passive income. While our writer isn't buying this stock yet, he believes it's worth…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

This amazing FTSE 250 has a 8.8% dividend yield and trades at just 4x forward earnings!

Our Foolish writer believes this FTSE 250 stock is worth keeping a very close eye on. However, he's not keen…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Could this brilliant airline stock be the most undervalued company on the FTSE 100?

Our writer believes this FTSE 100 stock may provide market-beating returns over the coming years, noting its undervalued metrics and…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

The Rolls-Royce share price is discounted by 13.4%, analysts say

Our writer explains why analysts think the Rolls-Royce share price is lower than it should be, noting long-term earnings growth…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

If I’d invested £100 when the Lloyds share price crashed 15 years ago, here’s what I’d have now

Our writer thinks the Lloyds share price will see a period of steady growth in the coming years despite a…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Is Nvidia stock now becoming a joke?

Nvidia stock is up 155% in 2024 alone and the AI golden child has become the largest company in the…

Read more »