Should You Buy Vodafone Group plc As It Ends Talks With Liberty Global?

This Fool is more bullish now on Vodafone Group plc (LON:VOD) than at any other given time in the last 12 months!

| 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.

Vodafone today announces that discussions with Liberty Global have terminated,” Vodafone (LSE: VOD) said today.  That’s exactly the outcome I expected back in May — so what happens now? 

Bearish or bullish? 

On 5 June 2015, Vodafone said that it was “in the early stages of discussions with Liberty Global regarding a possible exchange of selected assets between the two companies.

Today’s statement gives Vodafone a different dimension — investors will now have to focus on fundamentals and nothing else. Frankly, I would not be prepared to buy its stock just yet, but I am ready to give management the benefit of the doubt, adding VOD to my wish list. 

That’s not been the case for a very long time. 


I need more evidence, though, that growth in organic service revenue will get closer to 1.5% quarterly, and that projected trends derived from its latest quarterly results (+0.8% growth rate) will get better into 2017. In fact, at 2.3 times its forward net leverage is still problematic, in my view.

Furthermore, management must confirm that free cash flow will be about £1bn on an annual basis, and possibly as high as £1.5bn on the back of additional cost reductions. Based on these assumptions, Vodafone will likely be able to maintain its rich dividend policy, according to my calculations — its current stock price implies a forward yield of 5.3%.

That’s important because Vodafone has a significant debt pile and if it does not grow, both principal and interest repayments will become heavier and could certainly jeopardise its credit rating, which is just a notch above junk. Finally, it’d be great to hear more good news than bad news for its German business, which underperformed in recent times. 


After months of speculations, its stock finally starts to trade without any M&A premium, which tends to inflate asset prices under extraordinary circumstances, including the possibility of a takeover, disposals or asset swaps. And that’s another reason why if I were to invest in the telecommunication sector today I would be tempted to buy VOD. 

Its shares are down almost 4% at the time of writing as the market did not digest the Liberty news, yet we are getting closer to a valuation that makes some sense now — the low end of my personal price target range remains 200p. By comparison, the average price target from brokers is about 250p, according to Thomson Reuters, but I’d expect a few downgrades as early as this week, particularly from the bulls who have pencilled a price target of 300p a share.

So, you can wait a day or two before deciding what to do.

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.

Alessandro Pasetti 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 woman jumping for joy in a park with confetti falling around her
Investing Articles

6.9% dividend yield! 2 cheap stocks to consider for a £1,380 passive income

Looking for a market-beating passive income? These FTSE 100 and FTSE 250 dividend stocks could provide a healthy second income…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

Potentially 34% undervalued, should I be watching the boohoo share price?

The boohoo share price has seen a rocky few years, but with signs that the economy is improving, could this…

Read more »

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »