I sold telecommunications giant Vodafone (LSE: VOD) (NYSE: VOD.US) in March, following the $130bn disposal of star US asset Verizon Wireless.
Vodafone had almost doubled my money in five years, with dividends reinvested, but I felt this was the right time to leave. The dividend income was still alluring, but profits were sliding, growth prospects narrowing, and with so much money to spend, I was worried that management would end up blowing it.
So how have things gone since then?
European Malaise
Judging purely by today’s share price, I was right to sell: Vodafone is down 20% from its 52-week high.
In May, Vodafone was forced to write £6.6bn off the value of its European operations, after struggling against tough price competition, macroeconomic woes, and ever-stiffer regulation.
Organic service revenue was down 9.1% in Europe, and 4.3% overall. Stripping out the Verizon disposal, it made a £5.3bn loss on continuing operations.
These disappointing figures underline to investors that Vodafone had sold out of the recovering US market, leaving it over-exposed to ailing Europe.
Go Vittorio
Vodafone’s chief executive Vittorio Colao warned at the time that cash flow would fall further, due to Vodafone’s £19 billion Project Spring investment programme, aimed at improving its networks around the world.
But he also said that investors would see the benefit later this year, as 4G spreads across Europe.
Although Q1 results also disappointed in July, as sales fell in Spain and South Africa, Colao could point to signs that Project Spring was starting to blossom.
Join The Quad Squad
Vodafone is still awash with cash, and Colao hinted last month that he would like to buy Liberty Global, owner of Virgin Media, which would give him access to the increasingly important ‘quad play’ TV, broadband, landline and mobile sector.
This is another crowded market, with mobile phone rival EE the latest to join battle, alongside BSkyB, BT, Virgin Media and TalkTalk. On-demand services such as Netflix are also stirring things up, and free-to-air services such as Freeview only muddy the waters.
My worry is that given the well-publicised size of Vodafone’s war chest, it will pay over the odds for any new mega deal.
Alternatively, Vodafone could even become a takeover target itself, for US telecoms operator AT&T, maybe, or any global rival that wants exposure to Europe.
If a bid presents itself, then I may regret selling. And when I check Vodafone’s current dividend yield of 5.4%, I also feel a twinge of seller’s regret.
Still, at today’s highly reasonable valuation of 11.4 times earnings, I can always buy it again.
