BT's Fundamental Value Is Overlooked
Regulatory and pension concerns are unfairly punishing the stock.
BT Group (BT) is the incumbent telecom operator in the United Kingdom. In 2016, it bought EE, the country’s largest wireless telecom operator, creating the only company that owns fixed-line as well as wireless telephone networks in the U.K. The U.K. has been slow to move to converged services, but we believe this acquisition will lead BT to push convergence similar to leading operators in several other European countries. We think EE provides the company with a competitive advantage over other operators. BT’s stock price has been hammered because of issues at other units, including regulatory issues and concerns regarding its underfunded pension. However, we believe the market has overreacted to these issues and BT’s fundamental value is being overlooked.
BT’s scale as the U.K.’s largest fixed-line, broadband, and wireless telecom operator provides the company with a narrow economic moat due to cost advantages. Additionally, BT benefits from efficient scale, as the costs for a new entrant to wireless telecom would be such that the operator would have an extremely difficult time earning its cost of capital.
Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.