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Agree completely Fleccy - there's always something and markets move in cycles. COVID was a bit of a wild card, as markets have never crashed so quickly and the QE that propelled growth stocks was monumental.
I agree that the future is going to be more 'connected' and we are on the verge of the next technical leap forward into the IoT and the Metaverse. Telecoms is going to be essential for that move forward, but so are a lot of other companies. As you well know, 5G will require new phones, local servers and lots of other hardware to run it. That technology is constantly improving and expanding so the market for those companies involved is going to be huge.
If you're looking at 5 year plus time horizons and the underlying mega trend, then it may be worth casting your net wider and researching some of the companies that make chips/memory/graphic cards etc. Quite a few are trading on lower PE ratios than VOD at the moment, and even pay small dividends. I see much more potential in those over the next 5 years plus.
Completely different animals to VOD though as like I said dividends are much smaller and the risks are higher. PE ratios are low at the moment, but there are supply chain issues that could lower current profits and push up those PE ratios, and if we do go into recession then those companies could face a demand shock and further falls of 20%-50% could be possible, although long term there is going to be huge potential for them.
I think now more than ever doing lots of research and diversifying could really pay off in the long term. Tech giants like Microsoft, Apple and Tesla are still trading on very high PE ratios, and there's still a lot of loss making companies that needed to be weeded out. They could drag the markets down, and with them could be quite a few companies who have good long term growth prospects that won't be factored into the SP, so could be could long term buying opportunities.
Anyway, time to buckle up - US CPI figures are being released at 1.30pm so we could be in for a wild ride this afternoon...
Looking at the price action over the last couple of days, there's been very strong resistance at around 126-126.50 indicating that someone is selling at those levels. It doesn't really explain the rise today though, which is very odd considering the wider markets were falling the telecoms sector was pretty much flat.
The only real possibilities are that either the price is being walked up to the seller or there's a big buyer in addition to a seller, as there's no real buying pressure from the wider market.
Either way I think today was an oddity and the SP will probably fall in line with markets to the bottom of it's trading range. I actually added a little to my short just before close and the ADR has been drifting downwards since UK close and the US markets are taking a spanking.
ECB meeting was pretty dire today. Downward revisions of GDP growth for the EU, an 0.25% rate increase all but confirmed for July, and a warning that there'll be a 0.5% increase after that if inflation doesn't come down.
There could be a real sh7tstorm coming at this rate, and things could get much worse than anyone is contemplating if Putin turns off the gas to Germany later this year, but that's another story...
You're right to a certain extent Rob. As I've said before you'll never get everything right, and sometimes things can go against you. If you have a well thought out strategy which takes account of the potential downside, when you need to ride it out or cut your losses, and importantly when to take to take profits, then if things go temporarily go against you then a paper loss is just a paper loss.
If, however, your 'strategy' is to sink all of your money into one share near it's multi year highs, averaging down when the price keeps dropping and failing to take any profits when the price rises, then you are a gambler, not an investor. The odds are stacked against you, and you have a very high chance of losing your money, as you'll end up selling when you need the money, which is very rarely at the right price.
I think if that was my 'strategy' and I saw my capital being eroded over the years, knowing I could have done better leaving it in a bank account paying next to no interest, then I'd probably end up being quite bitter and twisted and would spend most of my time on a board trying to encourage other people to will the share price up, and abuse people with contrary opinions, as my tiny little brain would think that would be the only option I would ever of having of recouping my paper losses.....
As for the SP - it's just trading within a range. Fundamentals didn't change from 116p to 132p, and they don't need to change for it to fall back to around the same level. The macro economic picture is still pretty dire and I don't think we've seen the bottom yet - only an outbreak of peace in Ukraine and/or inflation figures suddenly reducing will change that.
@Mikey - sorry to hear about your loss. We all need to deal with grief in our own way, so you do what you need to do and stuff what anyone else says or does.
Robina - financial metrics aren't a complete train wreck but they aren't a screaming buy at this price. Current PE ratio is around x14, dividend yield of around 5.7% with a dividend cover of 1.22, debt slightly up, with flat dividend and EPS for this year with FCF doing down slightly.
VOD have a stable income steam, but are facing cost pressures in the same way every company are, and a lot of companies are now starting to report gross revenues increasing which are in line or above targets, but are missing profit targets due to due increased costs, and VOD warned of the same thing in their results.
Fleccy and others have all posted about the potential of IoT etc in the long term, and they may very well be right, but if you're looking for long term potential have a hunt around and do some research as there are lots of other big companies who supply the hardware needed to support that change who will arguably benefit more and have lower PE ratios and better balance sheets, although dividend yields are lower and they have different risks. That's why it's good to be diversified.
The director buy was certainly a great vote of confidence in the long term by someone in the know, although look at the price she paid. If you've got a director buying, then it also means that at that point there was no other information that wasn't in the public domain - ie no imminent M&A activity, other than a possible merger with Three which we already know about and so is probably baked into the current SP.
In the short term the SP hit the top of the short term trading range at 132 and is struggling to get beyond that, and the bottom of that range is around 116. The top of the longer term trading range is around 142, so maybe this morning is just a slight retrace, it will bounce off 130 and go looking for 142 before ex div day next week. As I said a few days ago though, the risk of a retrace increases when you get to key levels like the 132 mark.
Accept that whatever you do you will never get it right all the time. The odds are stacked against you in picking the bottom to buy and the top to sell as you can only ever do that with hindsight.
If you are looking to buy or sell, then you need to look at probabilities and risk/return and use them to give you a slight edge. If you want to take advantage of that statistical edge, then you need to be active and consistent to allow that edge to play out. Avoid binary decisions like buy all, sell all, invest too much in one share, because that significantly increases risk. If you do sell, then you also need to be prepared to walk away if the SP shoots up afterwards. To do that though you need to maintain a watchlist of a variety of different shares/instruments in different sectors that have a low or negative correlation so you can find other opportunities to put the money to work elsewhere rather than jumping back in at a higher price or sitting in cash forever.
At the risk of sounding very unpopular, there are are a lot of risks at this price considering the recent price action. I said the other day that the price action was odd as it's very unusual to see such a big rise on average volume. Looking at my IG charts, it shows some big selling at around 3pm yesterday. That does support one of my guesses that the price was being walked up pre div in preparation for a short attack, or for someone who wanted to dump shares. Tbh I don't fully trust the volume indicator on IG so you might want to cross check that information.
The last time it touched 132p was back in Mid April and then it retraced to 115p.
I know it goes ex div on Weds and selling before then would mean you miss the dividend, but we are at the top of a short term trading range over the last few weeks, and aren't that far away from the top of a long term trading range of 141/142.
Ex div drops can be very overdone on VOD, especially when the SP is towards or at the top of trading range.
I'm sorry I don't have a crystal ball to tell you exactly where and when the SP is going, these are just a few points to consider, especially if you need to sell some in the short term.
Not a clue Fleccy, but the price action is very strange. SP has been flying upwards on average volume with sells outnumbering buys. Usually with rises of this size you would see the complete opposite.
My two best guesses are either there are a lot of buys going through that haven't been reported yet, or the SP is being walked upwards for a short attack.
They are just guesses though - all I know is that something is going on as the stated trades and volume do not explain the price increase.
You're right Fleccy - telecom stocks don't tend to get hit anywhere near as hard as financials and basic resources in a recession, and if that's where we are heading then VOD probably will hold up better, but that doesn't mean it doesn't have further to fall.
It will be interesting to see what actually happens to prices in the telecoms sector if we do into recession. I wouldn't be surprised to see the ones with the deepest pockets drive down prices to obtain market share both organically and by acquisition by driving profits/valuations into the ground and picking up distressed competitors on the cheap.
Selling, holding and/or topping up are very personal decisions that need to be based on when you need your money and what risks you want to take. Always a risk that when you sell you don't buy back at a lower price, either because it doesn't go lower, or it does and you don't pull the trigger thinking it will go lower.
Making binary decisions like buy everything now or sell everything exposes you to quite a lot of risk, as does having too many eggs in one basket.
With a 5 year plus time horizon, being diversified and riding out the bumps has always had the highest chance of success.
Fleccy - no he said 10% + so I’ll admit the use of the word hyperinflation wasn’t appropriate - my apologies but I was a bit narked last night.
If you look at the numbers, changes to the base rate don’t have as much impact as you think. Around a third of homes are owned outright, another third have very low mortgages and of the third left a substantial number these days are on fixed rates so it takes a while for increases in interest rates to filter through to reduce inflation - much longer than it did previously when we had double digit inflation.
What was very worrying about what he said is that we are heading into a period of pretty severe stagflation. Wage growth is forecast to be substantially below inflation and even though interest rates are rising, the differential between interest rates and inflation will be the largest it’s ever been in history. That means there is going to be a substantial cut in real incomes both for savers and workers. That means there’s less money to spend which in turn will mean that consumers have less money to spend. That can very quickly lead to a recession, which in itself is bad for company profits and share prices as gross revenues decline, but a recession with high inflation is even worse as that puts pressure on company margins so profits take a hit from both the top and bottom line.
All of that wasn’t being priced in a couple of weeks ago as everyone was thinking that company profits would be fine as companies would just pass on the cost increases to the consumer and maintain their margins, but that’s not feasible when real incomes aren’t keeping pace with inflation.
I think the penny finally started to drop yesterday which is why we are seeing such big falls.
It was probably the combination of the delayed reaction to Powell’s comments about the Fed won’t hesitate to increase rates past neutral. In plain English that means they are going to increases rates at a pace which makes a recession almost inevitable. The rally that followed those comments was market nonsense that was just setting us up for a bigger fall.
The final trigger were the results from Walmart and Target, both of which beat gross revenue estimates (revenue increases of 3-4%) but both were major misses on profitability as the increases in revenue weren't big enough to match the increases in costs. That's why I said the yanks were going to wet the bed, and when they finally digested all of that they have, and are dropping like a stone.
VOD could also face very similar problems. Yes they have something everyone 'needs' and they might be increasing existing customers contracts by CPI+3.9%, but in their forecasts they weren't predicting gross revenue to increase by anywhere near that amount. They know they'll end up with more churn, as when money is tight people shop around for the best deal, and the telecoms sector has been a notorious race to the bottom on pricing. Even if that doesn't happen, people will trim their exis
You really are some kind of special aren’t you Daniel?
Just because you haven’t got a clue what you are doing it doesn’t mean other people don’t.
You’ve invested in a single share that has destroyed your capital and you think that’s normal and unavoidable. The only thing you can do is hope, pray and insult other people.
Well I can tell you from professional experience that your investment decisions (guesses) and performance (losses) stink worse than your attitude.
I know a hell of a lot more about this stuff than you do and if you had an ounce of common sense you would have realised that by now. If you’re in any doubt about that then re-read my posts.
I told you back in Dec/Jan that someone was accumulating and they were.
I said the SP would get to 140p by May and it did.
I said 2 weeks ago that markets were about to tank and they have, and this morning I told you the yanks were going to wet the bed today and US indexes closed between 4-5% down.
None of that was luck or lifting from other people - it was hard work and analysis of a multitude of different data.
Why on earth would I want to lift stuff when I can do my own analysis?
Most of the stuff you read in the financial press or wider media is complete garbage either written by someone who doesn’t know what they are talking about or who have a vested interest in what they are writing - often both. I know because I work in this industry and I frequently tear to shreds the dodgy analysis and actions of others and have to dumb down comments to financial journalists who don’t have a clue what they are writing about.
I’ve tried to help other people out by offering genuine analysis and opinions, as I can remember what it was like when I didn’t have a clue what was going on. Ive moved on from that but you clearly haven’t and never will.
I can’t put up with your nonsense anymore.
GLA whatever you decide to.
All original content Dan. The numbers and information are all out there in the public domain, you just need to find it. If you tune into Bloomberg or CNBC you can listen to what the policy makers are actually saying, which is usually the biggest driver in the markets, although the reaction can often be delayed.
Financial ‘experts’ invariably have a hidden agenda and financial journalists are far more clueless than you could possibly imagine, so I wouldn’t dream of cutting and pasting any of their work.
Just trying to help people put things into context. Many moons ago I frequented boards like this and got sucked into the euphoria on various boards instead of learning and ended up losing money. I then learned how to do it properly and spending time writing detailed posts is just my way of paying forward, plus it can help me clarify my own thoughts.
Lots of reasons this is tanking - I’ve been posting them.
Macro economic situation is dire. Inflation running hot and yanks are hiking up rates to try and control it. The chairman of the Federal Reserve yesterday said that basically they are going to keep rising rates until they get inflation under control, even if that means putting the US into recession. Markets didn’t get it yesterday but they have today which is why the US markets are tanking, and where they lead we follow.
The situation is worse in Europe as inflation is just as high, but 60% of it is rising energy costs, so raising interest rates will have limited effect, and besides Europe (where VOD derives most of its income) is already teetering on recession because of the Ukraine conflict. UK is some where in between the two and has more scope than Europe to raise rates, but nowhere near as much as the US. The governor of the Bank of England said almost 2 weeks ago that we are facing hyper inflation we can’t do much about, and a recession is looking likely, but again the magnitude of those comments still hasn’t sunk in.
VOD does have relatively stable income streams which they are trying to increase to keep up with inflation, but they have rising costs as well - everything from energy, wages and material/construction costs for the 5G rollout. Their forecasts in the results this week was for increased turnover, but flat EBITDA and slightly reduced FCF as the higher cost of borrowing and capex slowly kick in.
The dividend is safe for now but won’t be increasing and neither will profits. Bond yields are rising and it won’t be long before you can get a guaranteed 5% income from investment grade debt, so why on earth would you hold a share to get a 6% dividend yield when that dividend could be cut or stopped and there are significantly higher risks to your capital.
The UAE do indeed have money to burn and have been buying anything at any price for years, so I wouldn’t read too much into that.
VOD declined offers a few months ago as the price wasn’t good enough, and there’s no way in hell those offers are going to get any better from any shrewd investors / companies as they’ll be keeping their powder dry for potential fire sale bargains.
So the macro economic picture is rubbish and now results are out and there’s virtually no chance of any juicy M&A happening, I’m not really sure what could drive the price up in the short term, although ex div day is going to be a shorters wet dream now most of the upside risks are off the table, and they will be targeting £1 a share at least.
We are all entitled to our opinions about what might happen in the future, I’m just explaining what’s happening now.
Markets move in cycles, and right now it looks like the only cure for high inflation is a recession, so be prepared for that eventuality.
Poker chips - amortisation is an accounting measure and has nothing to do with tax. It’s actually one of the first things you strip out of a set of accounts when doing the CT return and replace it with capital allowances, and once the AIA has been used, the remaining costs get spread over a number of years in way that’s slightly different to amortisation. Yes in certain circumstances you can write down assets to create a loss for tax purposes.
Therefore when you significantly reduce capex you don’t get a massive surge in either accounting profits (due to the amortisation of previous capex) or a massive increase in your tax bill (due to capital allowances) but you will either see a massive increase in FCF which in this case should lead to a reduction in net debt.
To a certain extent I’m playing Devils Advocate with you and Fleccy, as I don’t know for certain what will happen, however I do know it won’t be as clear cut as when capex significantly reduces post 5G rollout and there is global adoption of IoT that the telecoms companies are guaranteed to be major cash machines. There are lots of other factors at play that we can see now, and lots more than we either don’t know or haven’t happened yet.
I agree about Big Tech - it’s scary stuff. I can remember watching sci fi films where the big corporations rules the world / galaxy. It seemed like fantasy at the time, but it looks like we’re on that path! Even space exploration is now starting to be done more by the private sector which would have been unthinkable 20 years ago. The legal departments of all the FAANGS are always kept busy with numerous regulators / court cases, but the speed of development is much faster than the speed of legislation at the moment so we’ll see how that pans out.
Anyway, brace yourself for the yanks to really start wetting the bed again when they properly digest what Powell actually said last night …
I think this is very solid and well run company with great underlying fundamentals but I think we are going to go through a bit of reset in terms of what we think is a good yield.
UK corporate bond yields have risen by 1.4%over the last 6 months up to 3.28%. With inflation running very hot and rates rising globally, yields could quite easily continue to rise.
Personally for a ‘sin stock’ I think the yield needs to be 7% plus. Admittedly you have the benefit of buybacks with BATS which will also increase EPS and they have one of the best dividend track records - never cutting and usually increasing.
After hitting multi year high of 3,500 I think it is vulnerable for a pull back so I’m out for now but will buy a lot more again if it does drop back
Fleccy - adoption of IOT is globally is inevitable, but who profits from it isn't. Some of the scenarios you imagine may come to pass, but they may not.
What is certain though is that telecoms companies most certainly have not benefitted in the last few years from the multiple changes in technology and end user needs and behaviour. Just look at the substantially lower profits and ROC of the companies in the sector. The share prices of VOD, BT, AT&T etc are all roughly half what they were 10 years ago, before businesses and consumers start adopting cloud based solutions en masse. At the end of the day we are all investors, and the total returns on our capital is the only thing that matters - not whether 'the market' is right or wrong.
I know you and some other bullish analysts are convinced that the massive reduction in capex once 5G rollout is complete will automatically lead to massive increases in profitability, but in assuming that you are ignoring that the sector is heavily regulated, and that the regulators won't step in to prevent such profits being made. They may not need to though if the telecoms sector keeps shooting itself in the foot by continually fighting on price. Regulators love fiercely competitive markets where companies are at each others throats and driving prices down, but they tend to step in if they see companies collectively maintaining or increasing prices to massively increase profits.
Telecoms companies are absolute minnows compared the sharks on Wall Street. Microsoft, Apple, Google, Amazon - any of them have enough cash reserves to buy VOD outright. VOD won't be able to compete with companies like that even if they wanted to - VOD will get the crumbs off the table. Even if the regulators do shift more costs to the Cloud providers, they'll just up their prices to maintain profits. It's not so easy to switch software suppliers as it is to switch connectivity providers so they've got far more pricing power than the telecoms companies could ever dream of.
What actually happens over the next 10 years to the telecoms industry and VOD could be closer to your scenario, my scenario, or something completely different that neither of us have thought of! The only thing I'm certain of is that nothing is certain, so I will position myself accordingly so I can make money no matter what happens, rather than letting all ride on one scenario that may or may not come to pass.
Fleccy - I understand those concepts and yes I can see massive revenue opportunities for the likes of chip manufacturers and other hardware suppliers as previously 'dumb' equipment is replaced by IOT hardware, and data centres shift from centralised to localised and lots of new servers need to be bought/installed. I can also see massive opportunities for software companies who can supply end to end software solutions for a variety of applications. The growth in those areas is going to be huge. As an example, once driverless technology is refined and approved, at the push of a button Telsa could make all of it's cars driverless and charge £10k ++ pa to every customer who wants it.
Other tech companies like Amazon, Apple and Microsoft are already cashing in big time on the move to the cloud, as they have developed new products/subscriptions that people are paying for. 10 years ago when you bought an iPhone that was pretty much it for Apple, now most people pay for iCloud storage on top of that and they also have other subscriptions like Apple TV, News, Music etc. 10 years ago you would have paid around £100 for a local copy of Microsoft Office that you might only have updated every few years, now you pay £60 a year for Office 365. Amazon Web Services is also by far the largest growth sector for Amazon.
Big tech are raking in the money from the move to the cloud, not the telecoms companies, even though all of the tech companies products are 100% reliant on broadband / mobile connectivity.
Meanwhile, 10 years ago you were probably paying the same or a bit more for a much slower broadband / mobile connection than you are now. Telecom providers have spent huge amounts of money upgrading infrastructure for both mobile and broadband, but aren't charging end users any more for it. They haven't benefitted at all from the move to the cloud, so it's not a given that they will benefit hugely from the next shift to IOT.
Reliance on connectivity doesn't necessarily lead to an increase in price or profits for those supplying it.
Mesh - you are of course correct that in an inflationary environment you can expect gross revenue to increase, but business asset prices aren't usually valued on gross revenue, but rather on net revenue. VOD are already increasing prices to existing customers of CPI+3.9%, but in their own forecasts, this increase in gross revenue will eaten up by increasing costs, as their forecast EBITDAaL is flat. That figure also doesn't take into account the increasing debt repayment costs, so net revenue from assets is set to decline in nominal terms, which isn't great at the best of times, but is even worse in an inflationary environment.
VOD aren't going out of business any time soon, but I'd question how much of a possible upside there is in the current inflationary environment when forecasts for profit and dividends are flat, and FCF is down a bit.
They've got to work hard to increase gross revenues just to maintain current profitability and dividends, never mind growth in either. When you strip out any potential for growth, all you are left with is a dividend which at current prices is around a 6.30% yield. That's not too shabby, as current UK corporate bond yields are around 3.28%, so investors are getting around a 3% risk premium which is about right. VOD may be around fair value at the moment, but if bond yields rise further, the SP will need to drop to maintain the same risk premium. Bond yields have increased by around 1.4% since December, and if they rise another 1.4% over the next 6 months, then the VOD SP would need to drop to 98p to maintain the current risk premium.
As for the long term mega profits for VOD with IOT that Fleccy and others think are bound to happen - I'm still not convinced based on their current product offerings. IOT will become an integral part of our lives, as will the connectivity to run it, but we'll probably just take that connectivity for granted and end up paying the same or less for it. We already pay less now for 5G than we did for 3G 10-15 years ago, despite the massive infrastructure spend to deliver it. The big winners will be true tech companies offering new products/subscriptions. The bulk of VOD revenue is still from mobile/broadband packages and that doesn’t look it’s going to change considerably. Even when the spending is 'completed', Telecoms companies won’t be raking in profits if the sector continues with it’s perennial race to the bottom on pricing. If that trend continues, cost savings will just lead to lower prices rather than massive profits.
The results were ok but not great. Price is currently around the half way point between the highs and lows of the last couple of years. If it hits the lows again in the next few weeks/months I’d probably buy a chunk as I can see this being range bound between around 100-140 for the foreseeable future.
Very much steady as she goes results. At the bottom end of revised guidance. Dividend seems safe but no chance of an increase either. Forward guidance is pretty much flat. As I suspected, the growth in revenue is going to get eaten up by rising costs.
Might very well see a relief raleigh, but I’m still concerned about how yield decompression could effect the price over the medium term with rising interest rates
I hate to break it to you Robleo, but it looks like the FTSE is going to give up all of yesterday's gains and possibly more. The down days have been very emphatic since last Thursday, and the rallies rather unconvincing. I still don't think monumental stagflation and recession have been reflected in the price of the FTSE. With US markets tanking and crypto going into meltdown, the FTSE may outperform in relative terms, but the direction still looks like it's going to be down.
If the cycle of raising interest rates to induce a recession to crash commodity prices and demand to curb inflation really does unfold, then the FTSE could have a lot further to fall. It may not be as dramatic as tech/growth stocks, as initially oil/mining companies will prop up the FTSE, but once a recession starts and commodity prices start coming down then the decline in the FTSE will accelerate.
VOD ADR finished 2% down yesterday near the lows of the day and near Nov 21 lows. This really is starting to shape up into a perfect storm for markets generally and VOD. Results are due next week, and if they aren't great then this could drop from already low levels, plus there's the ex dividend drop a few weeks later. If there's any hint of the dividend being cut then this could get very messy, very quickly.
I obviously don't have a crystal ball to know what the results are going to be like, or if there are going to be any pleasant surprises in the macro economic picture that could turn sentiment, but right now there are some serious risks out there. If they pan out then share prices will fall well below fair value, as bear market corrections always overshoot, although the extent and timing of the fall will be impossible to predict. I know a few people have mentioned and I've talked about spreadbetting, but be very, very careful using any kind of leverage at the moment as you could end up losing the lot.
I'm sorry to be such a harbinger of doom, but whatever your situation and strategy is then make sure you've considered these risks and how you are going to deal with them.
Volatility is nuts at the moment and I don't see that changing for a while. Markets are having a hard time digesting all the info. One minute 8.3% is bad as it was higher than expected, now it's good as it was less than last month! No doubt it will sink in that 8.3% as a standalone figure is bad, as are 0.5% rate increases at every meeting as a minimum, then the whole lot will come down again!
Don't worry - the FTSE will be joining the red club soon. US inflation hotter than expected at 8.3%. That means the Fed could even more aggressive with QT and raising interest rates.
All the US indexes are now below support levels so I'd expect to see quite a lot of selling today and over the next few weeks, which will spill over in the UK and VOD.