Is Europe Dead? Vodafone Group plc And British Sky Broadcasting Group plc Don’t Think So

vodWith Europe and the UK having undertaken differing approaches to the credit crunch, it’s interesting to see that the UK economy is now performing better than the Eurozone. That’s at least partly because of the UK’s focus on recapitalising the banking sector through vast amounts of quantitative easing, while the Eurozone has been slower to reduce interest rates and has also held back from flooding the economy with cash.

Cheap Assets

The effects, though, have been marked. For instance, while Eurozone GDP grew by just 0.2% in the first quarter of 2014, the UK economy grew by 0.8%. However, one further effect of a lower growth rate is lower asset prices and, as Vodafone (LSE: VOD) (NASDAQ: VOD.US) has found out in recent years, it is possible to get great European assets at low prices, as its deals to purchase Kabel Deutschland and Spain’s Ono attest. Indeed, Vodafone has the capital to continue with asset purchases following its decision to sell its stake in Verizon Wireless, with its balance sheet remaining only moderately leveraged and thus giving the company the scope to conduct further M&A activity.

While BSkyB (LSE: BSY) (NASDAQOTH: BSYBY.US) is yet to embark on a similar acquisition spree, its sale of a 6.4% stake in ITV is rumoured to be a prelude to potential offers for Sky Deutschland and Sky Italia. The idea behind the deals could be to create a larger Sky that can more easily cope with the potentially damaging effects of a war with BT on pay-per-view sport. As with Vodafone, Sky’s balance sheet looks capable of being leveraged up significantly and, with European assets remaining lowly priced, now could be a good time for the company to engage in bid activity.

Looking Ahead

Certainly, a strategy of buying undervalued European assets is a long-term one. As mentioned, the Eurozone is showing little sign of improved macroeconomic performance and so investors in Vodafone and, potentially, Sky must be prepared to wait for European purchases to come good. However, with Vodafone offering a yield of 5.9% and Sky’s yield being 3.6%, shareholders can afford to sit tight, pick up a decent income and wait for their respective strategies to come good. The Eurozone may be struggling, but it is most certainly not dead.

Of course, Europe isn't the only place where there could be long-term potential. That's why The Motley Fool has written a free and without obligation guide to where we think the smart money is headed in 2014.

The guide could help you to uncover great value sectors and stocks with exciting future potential. As such, it could help to boost your portfolio and make the second half of 2014 even more prosperous for your investments.

Click here for your free and without obligation copy.

Peter Stephens has no position in any shares mentioned. The Motley Fool recommends British Sky Broadcasting.