Can Vodafone Group plc’s International Ambitions Return The Company To Growth?

Vodafone Group plc (LON:VOD) is on an acquisition spree but will this drive profits higher?

| 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.

Now Vodafone (LSE: VOD) (NASDAQ: VOD.US) has sold its holding in joint venture Verizon Wireless, which regularly contributed around £4bn to Vodafone’s bottom line, the company’s profits are going to take a hit.

Indeed, current City forecasts predict that Vodafone’s pre-tax profits will slump 57% between 2014 and 2015. So, to try and combat this decline, Vodafone’s management has gone on an international shopping spree.

European shopping spree

Vodafone started looking for acquisition targets within Europe and found plenty of opportunities. For example, the company has acquired Spain’s Ono for £6bn, and Germany’s Kabel Deutschland.

vodafoneHowever, it remains to be seen if these acquisitions will be able to fill the void left by Verizon Wireless. Specifically, Ono reported a net loss of €25m for 2013, down from a small profit of €52m during 2012 and Kabel Deutschland only reported a net profit of €250m for 2012.

Combined, these two investments are likely to yield income of €300m per annum for Vodafone, hardly filling the void left by Verizon. Still, as a pan-European telecommunications and pay-tv giant, Vodafone should be able to realise significant synergies from these two deals, which could result in a higher level of income.

Seeking growth in emerging markets

Outside of Europe, Vodafone is also looking for attractive acquisition targets. Only last week the company completed the full takeover of its Indian business, allowing the firm to improve its competitive position against market leader, Bharti Airtel.

Elsewhere, according to some sources, Vodacom — Vodafone’s African unit — is close to acquiring South African telecoms company Neotel Pty, from India’s Tata Communications. There is also talk that Vodafone will make an offer for the remaining 45% stake in Vodafone Egypt the company does not already hold.

India and Africa, account for 216 million customers, more than twice Vodafone’s subscriber base in Europe. In addition, Vodafone has investments in Ghana, Qatar, and Turkey.

New technology

Aside from Vodafone’s acquisition spree, the company is looking to increase its presence within the highly lucrative mobile payments market, using a technology developed within Africa.

Vodafone’s subsidiary, Safaricom owns the mobile payment system M-Pesa, which was launched several years ago with the UK government, as an overseas aid project. The mobile money service handles the equivalent of a third of Kenyan gross domestic product a month in text-messaged cash.

Now, Vodafone is bringing this fast growing payment system to Europe where it has the potential to revolutionize Europe’s mobile payment network. 

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.

Rupert does not own any share mentioned within this article. 

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

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 »