This is a company that back in the tech boom days, when it was seen as a more of a growth story, did see its share price get to around the 400p level, but that was back in 2000. Since then it hasn't really got close to that price level and as it is now seen as more of a mature company, as such it's not unreasonable to expect to see its price based on a more sensible valuation of its fundamentals. However, Vodafone has one big advantage which in terms of its potential share price appears to be totally overlooked and that is the share of Verizon Wireless that it owes.
The Vodafone share price has recovered recently partly on the back of some deal or takeover being on the cards with Verizon for Vodafone's stake in the company. It is clear that the two companies find it difficult to live in harmony with each other and that both sides might just be edging towards some kind of mega deal that would, or at least should have a dramatic effect on Vodafone's share price.
The key fact seems to be this. Vodafone is valued at a market cap of around £92 billion, but some estimates put its 45% share of Verizon at more than that. In other words, Vodafone's current valuation seems to totally discount the Verizon share, which is quite remarkable when you think about it. This is effectively what US hedge fund manager David Einhorn said back in January when he increased his stake in Vodafone.
http://www.businessinsider.com/greenlights-david-einhorn-bullish-on-vodafone-2013-1
In the meantime Vodafone will no doubt continue to pick up a sizeable yearly dividend from Verizon until the two parties decide what they are going to do. Until that happens its clear that Vodafone is holding a strong hand with its 45% stake, a potential £90+ billion of value which the market seems to be ignoring.
Update 03/04/13;
Verizon have announced that while they are interested in the 45% stake, rumour of a buy out with AT&T are false.
"As Verizon has said many times, it would be a willing purchaser of the 45% stake that Vodafone holds in Verizon Wireless," Verizon said in a statement Wednesday.http://www.digitallook.com/news/20801073/Verizon_dismisses_reports_of_bid_for_Vodafone.html?username=&ac=
"It does not, however, currently have any intention to merge with or make an offer for Vodafone, whether alone or in conjunction with others."
Vodafone slightly down on the news. The hope of a bid remains though as Verizon states it would be a "willing purchaser", but at what price?
Update:
ReplyDelete"There's a general feeling that the debate about the future of Vodafone’s US mobile venture is now coming to a head. A sale could provide Vodafone with almost £90bn in cash but what would it do with the proceeds?"
http://www.telegraph.co.uk/finance/markets/questor/9953027/Questor-share-tip-Hold-the-line-for-news-on-Vodafones-US-stake.html
More talk today pushing up the price. Verizon and AT&T talking takeover at 260p a share?
ReplyDeletehttp://www.guardian.co.uk/business/marketforceslive/2013/apr/02/vodafone-bid-talk-verizon-att-ftse-cyprus
Hi I can see you have been tracking VOD for sometime. Back on 18 Dec 2012 your post was clearly negative and you have obviously changed track since.
ReplyDeleteCan I ask (and you dont have to answer) - would you have shorted / been tempted to short at that time and at what stage would you have gone long? + Would you have just jumped in on the long side or possibly taken a smaller position and then added as you go.
FWIW I have held VOD for a while just curious. Dave
In a way it depends on the time frame you are trading/investing in and what type of trader/investor you are. I think back in December the charts were looking ugly for the immediate future, I wasn't short and didn't hold any position on Vodafone at that time. It just seemed to me that going long, buying into that downtrend was likely to lead to further paper losses as there was no clear indication that the trend was likely to look up at that time. From a technical point of view you would wait before going long. Technically it was ugly, but the fundamentals were also being questioned. The charts are actually looking better now, the bounce coming largely on the back of market feelings about a big deal being made with Verizon.
DeleteI've concluded about Vodafone that current market sentiment is somewhat negative about its immediate fundamentals but the big plus is that they also seems to be ignoring the value of the Verizon Wireless stake which is substantial. It's an interesting situation because it would appear that the market does not know how to judge the Verizon holding right now. They occasionally get excited about a possible mega deal happening and the share price seems to move on that, but not in too big a way. If you add in the Verizon stake then Vodafone surely has to be cheap? It's around £90+ billion of value which will either continue to deliver dividend payments or be sold off/taken over/merged at some time. If I was a buy and hold investor I wouldn't be too concerned about short term technical moves although it can be frustrating that value often takes a while to be recognised.