Vodafone Group PLC
Tuesday’s close: $27.52 (Trades in the U.S. as an American Depositary Receipt)
52-week trading range: $24.42 to $30.37
Annual dividend: $1.58 per unit for a yield of 5.7 per cent
Analysts’ ratings: There were 3 buys, 1 hold and 1 sell, according to Bloomberg data. Target prices ranged from $21 a share estimated by Sanford C. Bernstein analyst Robin Bienenstock to $31.40 a share by Goldman Sachs analyst Timothy Boddy.
Recent history: Securities of the London-listed British mobile operator have struggled amid a weak European market dragged down by the region’s debt woes. But Vodafone’s American Depositary Receipts have gained about 9 per cent (including dividends) over the past year thanks to recent buying activity. The units plunged to a 52-week low last month, but then surged last week amid speculation that Vodafone and U.S.-based Verizon Communications Inc. were poised to resolve the future of their lucrative U.S. joint venture. One scenario is a merger between the two telecom giants. The other is Vodafone selling its 45-per-cent stake in fast-growing Verizon Wireless to its partner, and using the cash to make acquisitions in Europe.
Manager insight: Units of Vodafone have been stuck in a trading range for the past couple of years, but it’s no time to hang up on the telecom company. A merger between Verizon Communications and Vodafone, or the sale of Vodafone’s stake in their joint venture, could make its stock “go up substantially higher,” says Norman Levine, a managing director with Toronto-based Portfolio Management Corp.
A merger is a more likely scenario because there would be “minimal tax implications” compared with Vodafone selling its joint-venture stake, suggested Mr. Levine, who has owned its ADRs for many years. “They would call it a merger but it would basically be Verizon buying Vodafone [whose stock is lot cheaper on a price-to-earnings multiple]...They would have to pay up for Vodafone.”
Mr. Levine was attracted to the British mobile carrier because of its stake in Verizon Wireless, “which is the best wireless asset in the world.” If Vodafone were to sell its stake, however, it could use some of the proceeds for acquisitions - like Germany’s largest cable operator Kabel Deutschland Holding AG, which it has been eyeing, he said. “If they do this transaction [sell its interest in Verizon Wireless] in the United States, they are basically looking to sell high, and buy low in Europe where [asset prices] are down.”
It’s tough to predict whether the merger or sale scenario will happen this year or next year, but Vodafone investors will continue to benefit from the hefty dividend that Verizon Wireless began paying to its parents two years ago, he said. In 2011, Vodafone made a special payout to its own shareholders. In 2012, it bought back stock and reduced debt. “We expect Verizon Wireless to pay out a large dividend this year,” Mr. Levine said. “Vodafone will either pay some, or all of it to shareholders, or once again pay down debt and buy back shares. It’s all accretive to shareholders no matter what.”