Is Talktalk Telecom Group plc a better buy than BT Group plc after CEO resigns?

Talktalk (LSE: TALK) is as much as 7% higher today following news of its CEO’s resignation. Dido Harding has run the company for around seven years and will stand down in May. Investors seem to have reacted positively to the news, judging by the rising share price. Alongside this is a third quarter update which is generally in line with expectations. Could now be the right time to buy Talktalk ahead of sector peer BT (LSE: BT.A)?

A difficult period

Harding’s reign as Talktalk CEO has been rather mixed. On the one hand, she helped develop the company’s offering so that it has become one of the major quad-play operators. It has significant long-term growth potential due to its value proposition and relatively high flexibility in price plans compared to rivals. Furthermore, investment in its operations has created a more efficient business which is capable of delivering high profit growth in future years.

However, the company’s recent past has been negatively impacted by the hacking scandal. This severely weakened its share price and caused investor sentiment to remain low. Customer confidence in the business also took a hit and it could be argued that it has never truly recovered. As such, the change in CEO could be welcomed by the market through a higher share price in future months.

Contrasting fortunes

Today’s Q3 update from Talktalk is very different to that released recently by sector peer BT. The latter issued a profit warning thanks to problems with its Italian business. It will be investigated by Italian authorities and that’s likely to act as a drag on performance over the next couple of years.

Therefore, it seems relatively likely that BT’s share price will be held back to at least some degree by disappointing performance in one division. Coupled with this is a difficult outlook for the business in any case, since it’s seeking to integrate EE and manage possible changes at Openreach. Therefore, its outlook is uncertain.

In contrast to this, today’s update from Talktalk shows it’s performing as expected. Its revenue is around 5% lower than in the same quarter of the previous year, but this was anticipated since it has rolled out a number of lower priced plans. Looking ahead, it’s forecast to record a rise in earnings of 10% next year and 13% the year after. This puts it on a price-to-earnings growth (PEG) ratio of just 0.8, which indicates that its shares offer significant upside.

Of course, senior management changes always bring a degree of uncertainty. However, in Talktalk’s case it could represent a shift in investor sentiment and a feeling that the company will be allowed to move on from the hacking scandal. Although the current CEO has done a sound job overall, Talktalk could deliver improved performance in future. Given BT’s uncertain outlook, this suggests it’s a better buy than its industry peer.

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Peter Stephens owns shares of TalkTalk Telecom Group plc. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.