With the Vodafone share price climbing, is now the time to get in?

With the Vodafone Group plc (LON: VOD) share price on the rise, could this be the start of a longer road up?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Friday saw some good news for Vodafone (LSE: VOD) – the kind of news that means its share price is currently up about 15% compared to the day before the release. In a mostly unexpected move, the company said that it is transforming its tower business into a separate legal entity that it would consider floating or selling within the next 18 months.

Based on 2018 figures, this entity would have about 62,000 masts spanning 10 countries, have an annual revenue of roughly €1.7bn with an EBITDA of €900m. What’s more, the rest of the quarterly results in which this news was made, beat expectations in what the company called a “turning point” in its performance.

Change of heart

CEO Nick Read has historically been averse to selling the company’s towers, even as various competitors such as Telefónica and BT have done so, along with a number of other cash-strapped European competitors. He said on Friday however, that he sees the assets as undervalued on the company’s balance sheet, and confirmed that Vodafone would use the money generated by any sale or London listing to pay down debt.

This also came following some good news earlier in July, after the European Commission cleared the company’s €19bn purchase of Liberty Global’s German and Eastern European cable networks. That said, Vodafone did cut its dividend for the first time ever to help fund the purchase, which according to the FT is the largest European telecoms deal in a decade.

Time to buy?

While this spin-off does have a lot of potential for the company, I don’t think the road is perhaps as clear-cut as one would like at this point. Its headline quarterly results figures did beat expectations, but this was very much along the ‘not as bad as expected’ line, rather than particularly positive numbers. Organic service revenue (effectively the money it makes from its customers) was down 0.2% year-on-year, while total revenue fell 2.3% to €10.7bn.

As mentioned, the company cut its dividend by 40% in May to just 9 euro cents a share. Though I generally approve of good management that is willing to cut dividends when needed, I still can’t help but think this move might be a sign of further cuts to come if more savings are required, particularly as the expansion and rollout of 5G could be set to increase costs and capital expenditure.

Though negative dividend growth is something I never want to see in a blue-chip company, if it remains just this one cut, it is not the end of the world. As it stands, this 9-cent dividend still yields more than 5% for the shares at their current price — a healthy number for an income portfolio and one I feel does make the current price attractive to take advantage of.

All in all, while I think there may be some hurdles ahead, this potential spin-off is certainly going to help Vodafone. It has reiterated its full-year profit guidance as well as showing some quarterly improvements. Though I can’t see the price keeping up the momentum of recent days as 2019 continues, this latest news may mean now could be a good time to get in.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »