With the Vodafone share price climbing, is now the time to get in?

With the Vodafone Group plc (LON: VOD) share price on the rise, could this be the start of a longer road up?

| 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.

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.

Friday saw some good news for Vodafone (LSE: VOD) – the kind of news that means its share price is currently up about 15% compared to the day before the release. In a mostly unexpected move, the company said that it is transforming its tower business into a separate legal entity that it would consider floating or selling within the next 18 months.

Based on 2018 figures, this entity would have about 62,000 masts spanning 10 countries, have an annual revenue of roughly €1.7bn with an EBITDA of €900m. What’s more, the rest of the quarterly results in which this news was made, beat expectations in what the company called a “turning point” in its performance.

Change of heart

CEO Nick Read has historically been averse to selling the company’s towers, even as various competitors such as Telefónica and BT have done so, along with a number of other cash-strapped European competitors. He said on Friday however, that he sees the assets as undervalued on the company’s balance sheet, and confirmed that Vodafone would use the money generated by any sale or London listing to pay down debt.

This also came following some good news earlier in July, after the European Commission cleared the company’s €19bn purchase of Liberty Global’s German and Eastern European cable networks. That said, Vodafone did cut its dividend for the first time ever to help fund the purchase, which according to the FT is the largest European telecoms deal in a decade.

Time to buy?

While this spin-off does have a lot of potential for the company, I don’t think the road is perhaps as clear-cut as one would like at this point. Its headline quarterly results figures did beat expectations, but this was very much along the ‘not as bad as expected’ line, rather than particularly positive numbers. Organic service revenue (effectively the money it makes from its customers) was down 0.2% year-on-year, while total revenue fell 2.3% to €10.7bn.

As mentioned, the company cut its dividend by 40% in May to just 9 euro cents a share. Though I generally approve of good management that is willing to cut dividends when needed, I still can’t help but think this move might be a sign of further cuts to come if more savings are required, particularly as the expansion and rollout of 5G could be set to increase costs and capital expenditure.

Though negative dividend growth is something I never want to see in a blue-chip company, if it remains just this one cut, it is not the end of the world. As it stands, this 9-cent dividend still yields more than 5% for the shares at their current price — a healthy number for an income portfolio and one I feel does make the current price attractive to take advantage of.

All in all, while I think there may be some hurdles ahead, this potential spin-off is certainly going to help Vodafone. It has reiterated its full-year profit guidance as well as showing some quarterly improvements. Though I can’t see the price keeping up the momentum of recent days as 2019 continues, this latest news may mean now could be a good time to get in.

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.

Karl has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »

Investing Articles

£12K in savings? Here’s how I could turn that into £13K annual passive income

This Fool explains how investing a lump sum can help her build a passive income stream to enjoy in her…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s why Rolls-Royce shares are now set to fly over the £4 mark

Once again, Rolls-Royce shares are crushing the FTSE 100. Should I add to my holding of this stock at the…

Read more »

Investing Articles

1 under the radar FTSE 100 AI stock investors should consider buying

Our writer explains why this FTSE 100 pick could be a shrewd investment with its established experience of using AI…

Read more »

Investing Articles

Does the beaten-down Diageo share price make it a no-brainer buy?

Harvey Jones spent years waiting for the Diageo share price to look like good value, before finally buying it in…

Read more »