Investment Profile by Pink Investments

 Vodafone

Vodafone (VOD:LSE)

Do you remember ‘TMT’s – ‘Technology, Media and Telecoms’? These were the companies that everyone wanted to invest in, back in  the late 90's. But many investors got their fingers burnt in the subsequent tech wreck.  Companies like Marconi fell 90%.  But times have changed.  The Dow Jones Index is at the high point it reached during the dot-com boom, and some telecom survivors have been slowly but surely clawing back.  We looked at which companies have been delivering on their promises,are cash rich and growing earnings.  Our previous picks of Telenor and Telstra are already showing good profits.

If a telecom company has survived the last few years, then the chances are it is doing something right.
If it is cash rich and profitable, the chances are it is really doing something very well indeed.  
One of the big incumbents starting to deliver results is Vodafone.  This giant has been largely written off by many investors. But, we should not underestimate the good old tried and trusted giants if they are delivering results.  It has taken BT (a previous pick of ours),a long time, but  their share price is now at a three year high. Vodafone Group is the world specialist in mobile phones. Vodafone Group is one of the rare groups that have a significant world coverage in the telecommunications field. It principally specializes in the mobile telephony and telephonic transmission network sectors. The group offers services from mobile phones to customized communication services (call management, message services) and supplies data management equipment,Internet, Modems, fax, directories and telematics servers.

It has subsidiaries in numerous countries: North and South America, Asia, Oceania and Africa. With its international presence it can satisfy the needs of over 122 million subscribers throughout the world. Better known by its former name, Vodafone Air Touch, it has become the leading mobile phone operator in Germany, U.K and the USA (Verizon Wireless in partnership with the American giant, Bell Atlantic).  And it has holdings of 25% in Swiss Mobile, 35% in Grupo Lusacell, 25% in Japan Telecom, 100% of Eirecell, 100% of Vodafone Spain and 70% in Libertel. On October 25th, reuters announced that South Africa's main phone company, Telkom will meet with Vodafone to discuss ways to enable their equal joint venture Vodacom to spread its wings beyond southern Africa. Recent reports from South Africa have said that the two groups were near a deal to amend a clause in their shareholders  agreement that bars Vodacom from expanding beyond southern Africa to allow parent Vodafone to expand into the region.

Earlier in the year, poor results announcements and guidance downgrades from other companies had a knock on effect and hurt the share price.  Vodafone has responded by making significant cost reductions, introducing some new and innovative products and growing their business in emerging markets. Vodafone has not yet been been rewarded, by the market, for these changes.  Vodafone must now deliver  operationally.  The cost reductions and growth in emerging markets should offset declines in its core European operations and, with easing  regulation, we believe that the company can deliver.  Revenue and margin pressure is real, but we have taken this into account.  New products should keep the group competitive, and active portfolio management would highlight Vodafone’s undervalued assets.  BlackBerry has been a huge success for Vodafone.  It combines email, a personal organiser and a phone in a package that's small enough to fit in your pocket.  Blackberry has helped win back young, affluent clients for Vodafone.  We see a share price of around 144p as fair value for Vodafone.  With a strong dividend yield of 5%, we recommend buying the shares at their current price.

Buy Vodafone (VOD:LSE) up to 140.00p