Vodafone (LSE: VOD) today announced a fibre network share agreement in Portugal as it continues its strategy of expanding its fixed infrastructure via a mix of build, strategic partnerships, wholesale and buy approaches. This is part of a bigger picture in which it’s widening its capabilities and offerings by various approaches in different countries. Today’s deal takes its ability to market high-speed services across Europe from 98m homes to over 100m.
Major transition
The FTSE 100 giant has been undergoing a major transition since the £84bn sale of its 45% stake in Verizon Wireless in 2014. Its £6.5bn acquisition of Kabel Deutschland and £6bn acquisition of Spain’s Ono, either side of the sale, and a massive £20bn investment project across the group have been major components in a platform to rebuild the earnings from Verizon that it exchanged for £84bn.
The shares have traded in a range around 200p to 220p for much of the last few years, spiking up to 240p+ a few times in the months after the Verizon sale when it looked like Vodafone might be ripe for receiving a bid or engaging in a merger. However, as speculation receded, the shares have settled into the narrower range. Through this period the price-to-earnings (P/E) ratio has been above 30 (nearer 40 at times), with the market evidently confident that earnings growth would come through in due course and seeing an annual dividend yield in excess of 5% as fair compensation while waiting.
Earnings turnaround
Strong earnings growth is now starting to come through, with the company reporting a 17% increase in underlying earnings per share (EPS) for its financial year ended 31 March 2017. The City consensus is for annual EPS growth of around 12% for the foreseeable future. With rising EPS now rushing over the horizon but with the share price still in the 200p to 220p range (currently 209p), the P/E is rapidly falling. It’s 26 for the company’s current financial year, down to 24 for fiscal 2019. Meanwhile, the dividend, which is now supported by rising free cash flow, offers a yield of over 6%.
As Vodafone begins to ‘grow into’ its P/E there will come a point when the shares begin to rise. That may be a while yet but with the annual yield now over that 6% figure, the shares look very buyable to me today for investors with a little patience.
Record results time and again
Renew Holdings (LSE: RNWH) has seen a massive turnaround in earnings since its nadir in the 2008/9 recession. The provider of engineering services in regulated UK infrastructure markets has posted record result after record result in recent years.
It said in a brief update today that it expects to report figures for its financial year ended 30 September “in line with market expectations, delivering an increase in operating margin alongside growth in both revenue and operating profit. The board also expects to report that the group has moved to a net cash position.”
Its shares are trading up 4p at 414p, valuing this AIM-listed company at near to £260m. With City expectations of a 17% rise in EPS to 30p, the P/E is a reasonable 13.8 and the price-to-earnings growth (PEG) ratio of 0.8 is nicely on the value side of the PEG fair-value marker of one. As such, I rate the stock a ‘buy’.
