British Telecommunications giant Vodafone can’t seem to keep itself out of headlines. For the investor’s sake though, it’s in the news for all the right reasons. Right from the start of the deal to sell its 45 % stake in Verizon, a lot of speculation has been doing the rounds.
First the Criticism
Many had touted the deal to be out and out beneficial for Verizon and not so much for Vodafone. It was said that the deal would only benefit Vodafone in the short run. Of the $130 billion it received from the stake sale, $85 billion was given back to shareholders in the form of dividends and shares of Verizon. There remained much ambiguity over what would be done with the rest of the money.
Then, AT&Ts takeover bid
There was a considerable amount of speculation that once the stake sale deal was completed, U.S. telecom heavy weight AT&T would bid for a takeover to explore opportunities in the European market. That though, didn’t quite materialize as AT&T was forced by Britain’s Takeover Panel to rule itself out of bidding for Vodafone.
So, what’s to be done with all that Cash?
Coming back to the post tax windfall that Vodafone received and how it plans to utilize it, the management seems to have everything figured out. Setting aside all speculations, Vodafone has submitted a tentative offer to acquire Spanish Cable Company Ono, which is valued at $10 billion. If this deal does go through, then it will enable the British company to set its foot firmly on Spain and compete with Telefonica, which is currently offering High- Speed Broadband solutions to Spanish households. It would also make this Vodafone’s third European acquisition in fixed broadband, within a period of just two years. Though Ono’s board is still exploring the possibility of an IPO, analysts say that the company’s shareholders constituting major private equity players would any day prefer selling to a Larger Telecom company like Vodafone. Vodafone is already present in Spain and the purchase could give it a lot of competitive advantage in this region. Experts say, that the bid has to be substantially higher than ono’s valuation though, if it has to go through.
Offering more to Customers
Carrying on the good work, the company has managed to strike a -year deals with NSN and Ericsson to improve network quality in Europe and emerging markets like India. The company is calling it the “Project Spring” through which it plans to accelerate and extend Vodafone's strategy to focus on data, enterprise and emerging markets. 7 billion GBP has already been invested to develop and implement this programme.
As an Investor, hold on to your VOD shares for the longer horizon, as the company is cash rich right now and will continue to pay and raise good dividends. Also, the committed plans to expand into emerging markets augur well for its future.
If you are going to post bullish reasoning, don't forgot the other side of the coin Nigy.
Investing 10 March 2014
Vodafone Group plc's (LON: VOD) growth prospects are slim!
What's more, Vodafone's current valuation has me worried. You see, at present Vodafone is trading at a P/E of 17 for 2014 rising, to 23 for 2015 as City estimates currently predict that pre-tax income is going to slide from £10bn during 2014, to £3.7bn for 2015.
All in all, a forward P/E of 23 looks very expensive for a company which is expecting earnings to drop 50% during the next year.
Further, City analysts expect Vodafone's dividend payout to remain almost unchanged during the next three years -- some analysts are even speculating that the payout could be cut.