Why Neil Woodford Sold Vodafone Group Plc

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By

Prabhat Sakya

Published in Company Comment on 18 February 2013

The investment guru turns bearish on Vodafone Group plc (LON:VOD).

Perhaps the most controversial company discussed at the Fool at the moment is mobile telecoms company Vodafone (LSE: VOD) (NASDAQ: VOD.US). Investment guru Neil Woodford recently added to the controversy by selling his complete holding in the company. Was he right to sell Vodafone? Or are the shares due a comeback?

At first sight, Vodafone appears the most uncontroversial of companies. Mobile telecoms is a solid business that steadily churns out income year after year. Vodafone is on an inexpensive price-to-earnings (P/E) ratio, and comes with a juicy dividend yield. What's not to like?

Underneath the surface

But underneath the surface lies more difficulties. Vodafone's main market is Europe, which is really suffering at the moment. This has led to a decline in the company's revenue, and I don't think things will improve that quickly.

What's more, in the UK Vodafone seems to have been outmanoeuvred by the merger of Orange and T-Mobile to form Everything Everywhere, which is beating Vodafone on what was its prime selling point: network coverage.

Plus there is the looming expense of the new spectrum auctions coming up. The analogous auctions 12 years ago smashed a hole in Vodafone's share price. Could the same thing happen again?

Turning the supertanker

But, on the other hand, we have emerging-market growth still to come, plus a coming boom in data services, as more and more people buy smartphones and browse the internet on these increasingly sophisticated devices.

For me, this picture means that Vodafone is not a screaming buy, but neither is it a screaming sell. Personally, I continue to hold the shares. But perhaps this nuanced view was not enough for Woodford to keep Vodafone as part of his income portfolio.

One final factor may be that the stock market seems to be rotating out from defensives such as Vodafone, which have had a strong run in the recent, trouble-ravaged years, to cyclicals, as we move to the more optimistic, bullish times of the future. Woodford may be moving with it. Perhaps we are just watching the Invesco Perpetual supertanker turn?

World-renowned super-investor Woodford has an unerring ability to tune out market fluctuations and fashions and come to a focus on company fundamentals and inherent value. This ability has enabled him to beat the wider market on a consistent basis. Want to learn about his philosophy and his recent buys? Then read our free report on "The FTSE Shares That Britain's Super-Investor Owns".

> Prabhat owns shares in Vodafone. The Motley Fool has recommended shares in Vodafone.

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Comments

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NigelTMF 18 Feb 2013 , 11:39am

Oh my goodness more Woodford worship!

FundDamager 18 Feb 2013 , 12:29pm

Is this the same Woodford that sold his Tesco holding at 320p?

ANuvver 18 Feb 2013 , 12:34pm

FundDamager: Or NG?

When even MF is going all "new normal" over moving into cyclicals, it's got to be tin hat time, surely?

TMFMarkRogers88 18 Feb 2013 , 12:44pm

I don't envy anyone required to make analysis on who the winners will be in the telecoms industry over the next ten years, or how economically attractive the industry will be. Very difficult to say.

Perhaps an old case of "the analyst and Dame Fortune playing a duet on the speculative piano, with the fickle goddess calling all the tunes". (oh my goodness more Graham worship, sorry about that everyone). The unknowable factors, to a greater extent than good analysis, might play the greater role in arriving at the right conclusions.

Vodafone is attractive positioned and attractively priced, rather like Apple at the moment. But (and I could just as easily be wrong about this) the sheer range of possible future intrinsic values makes it inherently difficult to make reasoned analysis, especially where capital preservation is concerned.

I worry that there are too many unknowable factors offsetting the attractive purchase price and prospective yield. That might just be because I'm not clever enough to make reasoned analysis in the sector. But for my personal taste, there are attractive opportunities out there in simpler businesses, where I can be more confident in how their business will look 10 years from now.

BigJC1 18 Feb 2013 , 3:38pm

Is Vodafones main market Europe ? USA, Africa and Asia make up about 60% of EBITDA, Southern Europe (which has real issues) is the smallest of all the markets. USA, Africa and Asia are growing quickly with Vodafone making real in roads in areas such as mobile payment systems (eclipsing the banks in Africa).

As pointed out above Woodford sold out of Tesco at 320 (366 today) and the Fool constantly points out how he has totally missed the boat on the massive gains seen across the banking sector (he also missed the losses but as the Foolish God of Investment I would have expected him to spot a buying opportunity - perhaps that's where he'll be investing next).

So I'll hold on to my Vodafone shares, I don't expect dramatic gains but they provide solid returns in what is a reasonably solid sector.

LastChip 18 Feb 2013 , 5:23pm

They are keeping very quiet about what is going to happen with their fixed network capacity since buying CWW.

That was an absolute bargain and gives them impressive spare capacity for data transmission, not to mention an increased intercontinental backbone.

I wouldn't write off Vodafone just yet. Wait and see how it plays out.

MySockBrokeHer 18 Feb 2013 , 9:14pm

Woodford lacks patience...

SevenPillars 19 Feb 2013 , 12:07pm

A broker downgrade and target price of 135p seems to have contributed to a fall today of almost 5p so far. That and the market doesn't seem too convinced on Vodafone bidding several £billion for Kabel Deutschland.

It should be a concern that in a strong market the Vodafone share price is heading the other way. The market might also be betting on the dividend not being maintained. For such a big company there seems to be a lot of speculation, unknowns and potential slip ups creeping into the picture.

ProfessorMarcus 19 Feb 2013 , 1:29pm

How many broker target prices are accurate?

BigJC1 19 Feb 2013 , 2:03pm

SevenPillars: The market often seems focused on short term, local issues. We saw it with Tesco (a small blip in the UK creating a massive drop), Standard Chartered (a fine in the US) and now Vodafone (Spain doing badly when the future is Africa, Asia and USA).

Sometimes the true fundamentals and long term prospects are lost on the back of one headline or analysts prediction.

jongleur100 19 Feb 2013 , 2:54pm

I'm happy for Woodford to sell his VOD stock: I have both VOD and Woodford's EDIN fund, and don't like duplicating my shareholdings, I'm going to sell AZN for the same reason.

invest2sail 20 Feb 2013 , 2:50pm

Well, the price for 4G is in. The government seems to think VOD and the others got a bargain. They certainly got it for less than some of the speculation would suggest.
As soon as the current down trend looks to be over I shall be stocking up with some more.

14Grange 22 Mar 2013 , 3:18pm

Well I shall wait for Vodafone to come off the boil and then enjoy a ride on the way up once more. It's as good as a wave, always returning after a fall.

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