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

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

3 UK stocks I reckon could benefit from the upcoming general election

As the general election hurtles towards us, this Fool wonders which UK stocks could benefit, and focuses on three picks…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

At 11%, this dividend share pays the biggest yield in the FTSE 100

When a dividend share offers a big yield, we need to be cautious of the risks. But I reckon this…

Read more »

British Isles on nautical map
Investing Articles

I reckon Hiscox shares could be one of the best bargains on the FTSE

I've been investing in FTSE companies for years, but after a major decline I've not seen a company with as…

Read more »

Grey Number 4 Stencil on Yellow Concrete Wall
Investing Articles

4 reasons I’d still buy National Grid shares in a heartbeat despite the recent wobble!

As National Grid shares plunged on the news of a right issue, I’m not flinching, and reckon it's a top…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

After gaining 45% in 12 months, is the Amazon share price now overvalued?

Our author thinks the Amazon share price might be too high. While the long-term future of the business looks bright,…

Read more »

Investing Articles

2 hot dividend stocks I’d buy and hold for 10 years

Our writer reckons these two dividend stocks could help her bag juicy dividends for years to come and explains why.

Read more »

British Pennies on a Pound Note
Investing Articles

2 dividend-paying penny shares I’d happily own

These two penny shares have caught our writer's eye for a combination of income prospects now and business growth potential…

Read more »

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

This FTSE 250 share looks like a bargain to me!

This FTSE 250 share has seen its price tumble due to chaotic local economic conditions in a key market. But…

Read more »