The BT share price may be tempting but I’d buy this cheap FTSE 100 stock instead

Reports that communications giant BT (LSE: BT-A) is taking steps to defend itself from takeover bids sent its share price soaring last week. While this could help finally stem the multi-year fall, I think there’s a far safer ‘value’ stock elsewhere in the FTSE 100.  

FTSE 100 laggard

You can understand why BT’s management might be worried. Shares recently hit an 11-year low following their decision in May to suspend dividends. The idea is that this will provide some protection from the impact of Covid-19 and help to accelerate its push to install full-fibre broadband in UK homes.

On paper, the cut made sense. In reality, the dividend has been one of the few things preventing investors from jettisoning the stock from their portfolios. With many having done so now, BT’s market-cap is currently a little over £10bn. That’s similar to pest control firm Rentokil Initial and copper miner Antofagasta. Five years ago, it was worth four times as much. 

What price BT?

Last week’s developments have sparked a frenzy of speculation over what price the company might fetch if (and that’s a sizeable ‘if’) a suitor comes knocking. BT has asked bankers Goldman Sachs to factor in a £15bn bid — a significant increase on the current valuation.

If a bid from private equity firms or a competitor is actually forthcoming, there’s a chance those investors buying now could make good money. This probability increases in the event of multiple offers. The acquisition of Sky in 2018 proved that.  

Notwithstanding, I wouldn’t rush to buy this or any stock purely on its takeover potential. Market history is littered with bid rumours that never materialised. In the meantime, the company still has a truckload of debt on its books and a big pension deficit to plug.

BT is lowly-priced but justifiably so. I think FTSE 100 peer Johnson Matthey (LSE: JMAT) could be a better buy. 

Green shoots 

Like BT, JM’s share price performance over the last few years has been far from positive. Shares are now valued 35% lower than they were in June 2018, giving a P/E of 16 times earnings. This reduces to less than 13 times earnings in FY2022, assuming analyst estimates are correct. 

For those unfamiliar with the company, Johnson Matthey supplies catalysts and catalyst systems to reduce emissions. It also offers products that recycle scarce resources using less energy and develops active pharmaceutical ingredients for life-changing drugs.

By far the most important aspect of the company for me however, is its interest in battery materials and hydrogen-related technology. In addition to being solid growth opportunities, these green credentials are likely to attract younger, environmentally-conscious investors to the stock.

For now, however, things aren’t great. Last month’s AGM update was a pretty gloomy affair with the company stating that group sales were “materially” down due to lower consumer demand in its ‘Clean Air’ segment. Although sales are now recovering, gauging demand from customers was still proving tricky.

That said, JM’s balance sheet looks in better shape than BT’s. A wide range of clients from multiple industries gives the company some earnings diversification and it still pays a dividend (albeit reduced).

Forced to select the best value play from this FTSE 100 pair, my money would definitely be on Johnson Matthey.