Travel on any rush hour train and you’ll see it packed with commuters busily working on laptops, watching movies on tablets, or checking emails, listening to music and playing games on smartphones.
When I’m home I’ll be either watching TV, working on my computer or browsing Instagram or Facebook on my phone. Modern life is dominated by technology. Surely, you would expect, companies that are part of this tech boom would be bound to do well?
Where is that game-changing deal?
Which leads us to the enigma of Vodafone (LSE: VOD). While the share price of telecoms and broadcasting peers such as BT Group and Sky have been rocketing over the past few years, the share price of Vodafone has been moribund since the sale of Verizon Wireless to Verizon Communications in September 2013.
This demerger was part of Project Spring, a much-vaunted programme of corporate activity that was meant to renew a company that seemed to be in its autumn. But while the Verizon sale has meant that Vodafone could make a few small-scale takeovers in Europe, and has allowed it to invest in network improvements and 4G, it has had little effect on the profitability of the business. The project hasn’t been able to arrest Vodafone’s slow decline.
There have been on and off discussions with Liberty Global, a telecoms giant that owns a range of brands around the world including Virgin Media. But nothing has materialised, and what has been notable by its absence is the lack of a big, all-encompassing, game-changing deal. The fact that three years have now passed since the demerger suggests that there may not be such a deal.
Sky did it by taking over Sky Italia and Sky Deutschland, allowing it grow in markets other than the UK. BT did it by expanding into pay-TV and sports broadcasting, and purchasing the leading broadband and telecoms firm EE.
Vodafone may have missed its chance
The profitability and share prices of both these companies have been on the rise, and these are my preferred investments in this sector. Meanwhile Vodafone seems to have been out-thought and out-flanked.
Part of Vodafone’s difficulty is that more of its revenues are made in a slow-growing Europe rather than high-growth emerging markets. And it also lacks a stake in a pay-TV broadcaster that can compete on a global stage with the likes of Sky.
However, if Vodafone has been lacking in earnings and share price growth, one major appeal of this stock is its income. A dividend yield of 5.05% is likely to be maintained or increased well into the future. This is one for the high-yield investor.
But those seeking out growth should look elsewhere, as Vodafone seems to have missed its chance to transform the telecoms sector. I can see better opportunities elsewhere in the FTSE 100.
