Having sold its stake in Verizon Wireless, Vodafone (LSE: VOD) (NASDAQ: VOD.US) is attempting to improve its diversity. For instance, it is all-set to pay €7.2 billion for Spanish cable operator, Ono, as well as spending €7.7 billion on German cable operator, Kabel Deutschland. Both of these transactions are similar in so far as they seek to move away from Vodafone being a pure-play mobile operator and, it could be argued, are a sign that Vodafone is seeking more stable revenue streams going forward.
Good Value
Of course, both acquisitions are in Europe, so it is clear that Vodafone is not placing geographic diversity at the top of its ‘to-do list’. However, it highlights just how cheap companies in Europe are, with Vodafone stating that it is considering further offers for undervalued assets in Europe. It could even be argued that Vodafone is such an undervalued European company, with there being fairly persistent rumours regarding a takeover of Vodafone by various suitors, including US telecoms giant AT&T. The continuation of such rumours could have a positive impact on Vodafone’s share price in future.
Beta
With the UK and European economies making significant improvements in the last year, Vodafone could be well placed to benefit from an upturn in share prices. That’s because Vodafone’s beta is currently 1.1, meaning that (in theory at least) shares should post gains of 1.1% for every 1% gain in the wider index. This could be beneficial in a bull market, since Vodafone should outperform the wider index. Of course, shares in Vodafone should (in theory) fall by 1.1% for every 1% decline in the wider index, too. However, with the FTSE 100 currently trading on a P/E of 13.2, the wider index does not appear to be overvalued at current levels.
Looking Ahead
While the sale of Verizon Wireless was questioned by many investors at the time, it appears as though Vodafone is picking up good value companies that are able to diversify its revenue stream. Although it is now much more focused on Europe, this appears to be a region in which there are bargains to be had — with Vodafone even being seen by peers as a quality company that could be bought on the cheap. As a result of a more stable revenue stream, the potential for further bid rumours and a beta that lends itself to progress in a rising market, Vodafone could have a great future ahead of it.
