BT Group PLC (LSE:BT.A) was one of the stocks highlighted in research by a leading investment bank, which assessed the potential for future significant gains across the sector, which, up until this year, has been moribund.
According to a note by JP Morgan, the telecom shares have seen a 23% increase year-to-date, making them among the best-performing in Europe.
The positive market movement comes after over a decade of underperformance. Industry analysts point to several contributing factors, including a long-awaited return to revenue growth and an outlook for earnings per share to grow in the high single digits.
Additionally, telecom companies are believed to have passed the peak in capital expenditures, allowing them to reinvest more profitably in their businesses.
However, JP Morgan's note emphasizes that investor scepticism remains, partly due to the intensifying competition in promotions and a slow start to the third-quarter earnings season.
Despite these headwinds, the bank is optimistic that regulatory approval for mergers in the UK and Italy would boost sentiment across the sector, including for BT.
Those transactions are Vodafone Group PLC (LSE:VOD) and Three UK's amalgamation and Voda's sale of its Italian business to Swisscom.
Regulatory decisions are expected in the coming months, and experts believe they could serve as a catalyst for a broader re-rating of European telecom companies, including France’s Orange and Sweden’s Telia.
JP Morgan advocates a “barbell approach,” suggesting investors focus on both high-quality companies like Deutsche Telekom, as well as value stocks like BT, to capitalize on the possible regulatory changes.
As the industry waits for key decisions, the outcomes of these mergers are likely to determine whether telecom companies can sustain their recent gains.
In late morning trading, BT shares were off 1% at 142.85p.