If I wanted a dog I'd buy a poodle, not a share...15 Jun 2023 14:40
Holding = 23,200
Avg Price = 118.11p
Been buying VOD since 03/2018 thinking it was trading near its cyclical bottom but the bottom just kept on falling.
If you look at most of the UK Equity Income and UK High Yield funds, VOD doesn't feature in their Top 10 holdings, which is surprising given the way the yield has risen in that time. That tells you that the pros don't fancy this share as a core holding and, looking at the Special Situation funds I can find, it doesn't feature there as a recovery play either. You have to say the pros have had it right all along on this one.
The 3 merger has been well telegraphed in the mainstream press for months and the sp has continued to fall. When they finally confirmed their intention this week, the sp hardly blinked. A few things stand out to me here:
1) The merger is slated to take 2 years to approve and then 5 years to complete and start to realize +ive cashflow. They are estimated to have burnt through ~£500m in integration costs by then - though I can see that heading north - costs always spiral one way. Overall, that's a long time to wait to see if your gamble has paid off and the market will look to shorter term, lower risk plays.
2) Approval is not guaranteed and I think the market sees incompletion as a high risk. A Hong Kong telco owning 49% of the combined business doesn't sit well those who see China as a growing threat and telco as a key battleground. I wouldn't be surprised if this got canned on a national security basis.
3) I'm not seeing any strategic vision offered by the board. They are betting their entire strategy on the merger. Maybe they are right and size is all that counts but it would have been nice to see more than 1 lever being pulled to jump start the engines.
I think the major factor is debt. VOD has been in long term decline for sure but that decline only steepened when borrowing rates went up, so if the sp heads north again I suspect that will be more to do with rates coming down than confidence in VOD or the merger. Basically, if you want to see £1 again a certain World leader needs to accidently fall out of a window, which means geo-political risk is in play and out of the board's hands.
Sorry to say it but this share is a dog. You buy these things because they tick Buffett's boxes of high cashflow and barriers to entry and still the rug get's pulled. I'll let the re-invested divi (for as long as that lasts!) slightly lower my AvgPrice over time, but I'd tell anyone else to steer clear, unless they want a synthetic way to bet on the Ukraine war ending sooner rather than later.
"An investment is a trade gone bad". 100% true for VOD for the last 5 years!