What Should You Do About Your Vodafone Group Plc Shares?

Are you wondering what to do with your Vodafone Group Plc (LON: VOD) 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.

Many investors will probably have come to know Vodafone (LSE: VOD) as a bit of a sector laggard over the last 12 months, given that the group has persistently underperformed much of its peer group in terms of both its financial results as well as shareholder returns.

Now, with the share sinking to a 12-month low after management officially shelved tie-up talks for the time being between themselves and Virgin Media’s owner Liberty Global, it isn’t difficult to see how some investors may be beginning to lose patience with the shares…

Quad-play is the word of the day

One of the most powerful trends shaping the telecoms market at the moment is the ongoing shift toward so called unified communications, otherwise known as Quad Play packages, which have formed the prompt for the current wave of M&A activity that is sweeping across the industry.

Traditionally, there has been little demand for Quad-Play packages in the UK and, as such, Vodafone’s investment in this area has been almost non-existent on home soil to date. However, the group did make a belated entry into this space in Europe when it bought Germany’s Kabel Deutschland and Spain’s ONO during the 2013/14 years.

These purchases were the result of a persistent decline in Vodafone’s position within core European markets as consumers began to shun single service providers in favour of cheaper multi service retailers.

Although it remains squeezed by low prices, which are the predominant source of pressure upon service revenues, Vodafone’s belated move into the quad-play arena has enabled it to slow the exodus of its European customers.  

Will it pay off in the long term?

With this strategy appearing to yield results in Europe, it now seems that history is beginning to repeat itself as BT (LSE: BT-A) continues its push to acquire EE, a move which could create the UK’s largest multi service operator if successful.

Following on from this, Vodafone has since announced that it will be launching its own pay-TV and fixed broadband services in the UK later this year, in a move that many view as a desperate attempt to defend its customer base against an expanding BT.  

Understandably, there has been some level of speculation that this could see price competition across the communications spectrum increase during the coming quarters, which may be bad for earnings, while potentially leading to higher levels of customer attrition for Vodafone in the medium term.

However, if Vodafone’s pay-TV play does pay off then it could not only consolidate its position in mobile telecoms, but also diversify and grow the business simultaneously.

Fight or flight?

While there are plenty of reasons for investors to cling onto Vodafone shares, particularly those with extended time frames, such a move would not be without risks in the near to medium term.

Most notably because, Vodafone’s £19 billion two-year investment programme is expected to reduce 2015 earnings to somewhere in the region of 4.0p per share, while those for 2016 are projected at just 7.02 pence as a further consequence.

This means that the group will not be able to cover its dividend from earnings at any point in the next two years, which elevates the risk of disappointment for shareholders, particularly in the event that the business embarks upon another downturn or if UK pay-tv is slow to gain traction.

For me personally, I can’t help but think that for anybody who is looking to buy Vodafone shares, the above earnings outlook is likely to mean that there will probably be a better time than the present.

It is for this reason that I will probably elect to leave them on my watch list for the time being, although admittedly I will wait keenly to see whether this proves overly cautious of me or if such wariness is warranted.

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.

James Skinner has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »