Stocks in Focus: Vodafone


Thursday 6 September 2018



This week NW Brown are looking at Vodafone following the announcement that the Australian division (Vodafone-Hutchison Australia) will be merging with the broadband operator TPG Telecom to create a new 8.4bn company.

The merger is expected to generate substantial cost savings and revenue synergies through cross-selling products across their corporate and consumer customer base.

Following several years of tough competition, management have focused on streamlining the business, improving customer service and growing the company's global presence through a series of joint ventures, mergers and acquisitions. In order to achieve this, they have invested in three main projects: Project Spring, which completed in 2016 and targeted the modernisation of Vodafone's infrastructure; Fit for Growth - a cost efficiency program designed to improve margins; and a third project aimed at improving customer service and experience.

Despite the seemingly good news, the company remains out-of-favour with investors. One concern is the sustainability of the dividend, which currently offers a yield of around eight per cent. The company has so far upheld its dividend, with management resorting to paying it entirely out of debt during the cost-saving initiatives in 2016. Since then, dividend cover has been recovering steadily and is expected to improve further as the projects complete and start delivering results.

The company also recently announced that the current CEO, Vittorio Calao, will be departing later this year. Investors should be reassured that his replacement, Nick Read, has been with Vodafone for 17 years and has significant experience. However, there are the usual concerns that the new CEO's priorities may differ from that of his predecessor.

Nonetheless, Vodafone continues to hold its position as the second biggest mobile operator in the world with an increasing presence across mobile and cable. With that in mind and with a new CEO taking over shortly, investors will be keen to see their concerns about leadership succession and dividend cover alleviated.




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