Vodafone (LSE: VOD) (NASDAQ: VOD.US) has spent much of 2014 trading around the 200p mark, far below its 52-week high of 252p. The question is, will 2015 be the year that Vodafone finally breaks above the key 250p level?
To try and answer this question here are Vodafone’s key strengths, weaknesses, opportunities and threats going into 2015.
Strengths
Vodafone’s main strength is the company’s global dominance. For example, Vodafone has a large presence within India and South Africa, which has helped the group offset declining sales within Europe. What’s more, Vodafone is one of the world’s largest telecommunications companies, so it is able to afford huge infrastructure programmes that few others can compete with. In particular, Vodafone is currently in the middle of its £19bn Project Spring infrastructure project.
Project Spring is supposed to make Vodafone Europe’s premium mobile network and data provider, with unrivalled coverage and download speeds. In Europe’s highly fragmented telecoms market, Vodafone’s dominance is a key advantage.
Weaknesses
Vodafone’s biggest weakness is the fact that the company is old fashioned. You see, over the past decade the telecoms market has completely changed.
The ability for users to send voice and instant messages for free, over instant messaging apps, has significantly reduced the demand for traditional services that companies like Vodafone provide.
And this trend is set to continue, so Vodafone needs to adapt. The company’s Project Spring will go some way to helping customers connect, even free messaging services need connectivity, but it remains to be seen how Vodafone’s core, voice and text business will fare over the long term.
Opportunities
There are plenty of factors that could help Vodafone grow during 2015. For a start, the company is still building its quad-play presence.
Simply put, a quad-play provider offers broadband, mobile, pay-tv and fixed line packages, simplifying things for the user and reducing costs.
As part of its strategy to become a quad-play provider, Vodafone has acquired several smaller companies across Europe. Chief among these acquisitions are Ono, a Spanish cable operator and Germany’s biggest cable operator, Kabel Deutschland.
Further, as Project Spring ramps up and Vodafone’s service improve across Europe, sales should start to expand again, as customers return. According to forecasts, Project Spring will generate an additional £1bn in free cash flow per annum for Vodafone, from 2019 onwards.
Here in the UK, Vodafone is also looking to grow by targeting businesses customers. The company intends to offer fixed-line broadband services, along with the company’s current mobile offering to business customers. These bundles will be a key part of Vodafone’s goal to boost its enterprise business.
Threats
Unfortunately, while Vodafone does have plenty of scope to grow over the next 12 months, the company is currently under siege from a number of parties.
For a start, Vodafone is trying to defend its acquisition of Kabel Deutschland. It has been found that Kabel was worth significantly more than the €84.53 per share Vodafone paid. Kabel’s own projections and valuations suggest that it was worth €104 per share. Additionally, an activist hedge fund is demanding that Vodafone compensate shareholders with a payout of €250 per share. If the courts agree, Vodafone could be liable for up to €8bn in compensation.
Then there’s Vodafone’s £6bn acquisition of Ono. Specifically, within the past few months Vodafone has been forced to initiate an internal audit into Ono’s accounts, after Ono was accused of committing tax fraud in order to boost profits.
Meanwhile, over in India, Vodafone is bracing itself after a new competitor entered the market. Over the next three years, India is expected to account for nearly half of Vodafone’s service revenue growth, so this is an important market for the company.
However, Reliance Jio, part of the Reliance Industries empire, is planning to hire more than 3,000 staff to set up real and distribution chains across India over the next few months. This sales drive, along with the company’s 4G licence acquired in during 2010 will help Reliance wage a full-blow price war against Vodafone.
The bottom line
Overall, Vodafone does have scope to grow during 2015 but there are plenty of threats that could hold the company back. Nevertheless, Vodafone’s defensive nature makes it the perfect share for any retirement portfolio.
