Vodafone Group plc Cash Will Boost Lloyds Banking Group PLC

Vodafone Group plc (LON:VOD) cash could end up in Lloyds Banking Group PLC (LON:LLOY) shares.

| 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.

Partly by luck, and partly by design, a chunk of the cash coming back to Vodafone (LSE: VOD) (NASDAQ: VOD.US) shareholders will find its way into Lloyds Bank (LSE: LLOY) (NYSE: LYG.US) shares. That’s because institutional and retail investors will be flush with cash from Vodafone’s return of capital just as the next tranche of Lloyds shares come to market.

That augurs well for Lloyds shares.

Retail sale

George Osborne hinted last week that retail investors would be offered shares in the next round of Lloyds privatisation. The government isn’t permitted to sell any more shares before mid-December (unless recommended by two of the three book-runners). They won’t launch a sale just before Christmas, especially to retail investors. Sensibly, a sale in the New Year would wait for Lloyds’ preliminary results in early March.

Vodafone is expecting to complete the sale of its share of Verizon Wireless in the first quarter of 2014, following which it will return capital to investors in the form of cash and shares in US-based Verizon Communications. Some of those shares will get turned into cash, too: some funds can’t hold US shares, and many private investors will baulk at holding them.

That sets the scene for the government to release the next tranche of Lloyds’ shares just as investors have a large wodge of cash looking for a home. Putting it into Lloyds could be an astute move.

Set to double

The bank’s shares are now nearly double what they were 12 months ago. They have been buoyed by a recovering UK economy, a housing market stimulated by government subsidy, and good progress on Lloyds’ internal restructuring. The overhang of future share sales is a negative drag, so releasing stock into a cash-rich market should be positive for sentiment.

Lloyds is a recovery stock, and the recovery has some legs in it yet. Longer term, it may be a decent income stock, but I doubt its prospects for growth. Its market-place is finite and there will be more competition from newly independent TSB (ex-Lloyds’ branches) and William & Glyns (ex-RBS branches) as well as new entrants.

Vodafone

Of course, Vodafone shareholders could reinvest their cash in more Vodafone shares. That would be a play on management’s ability to execute its new strategy of combining cable and mobile assets — or a gamble on Vodafone becoming a bid target.

It seems Vodafone’s management is hedging its bets. The CFO and Chief Technology Officer sold £2.6m and £1.4m worth of shares respectively last week, shrewdly catching the high of 213p. It’s not an encouraging sign, but they do both still have substantial holdings.

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.

> Tony owns shares in Vodafone but no other shares mentioned in this article. The Motley Fool has recommended shares in Vodafone.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »