Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
I think we could see some buy backs once they've hit their target of reducing adjusted net debt to x3 adjusted EBITDA, and that could be as soon as next year.
It does make sense at these prices and at current dividend yields and interest rates.
The big picture for me though is that they are investing enough in ncps so that revenue stream can replace the inevitable drop in revenue from fags.
If they can do that whilst still continuing to gradually increase the dividend then I'll be happy, as for me this really is all about the dividend. If that's sustainable and rising then I don't really care if the SP didn't budge from today's prices as I'd just hold and keep reinvesting the dividend elsewhere.
I wouldn't be holding your breath about a takeover approach from a private equity firm as VOD is indeed too big for that.
To have any realistic chance of being accepted, the offer would have to be at least 160p which would be a £43bn deal, which is around x5 the deal size for Telecom Italia.
KKR are the worlds 3rd largest private equity firm, and have around £320bn assets under a management, and Telecom Italia will be one of it's biggest deals.
The biggest private equity deal this year (and the biggest since 2007) was when a group of private equity firms clubbed together to buy Medline for $34b, but even that figure is less than VOD current market cap, never mind the £43bn figure I mentioned.
I think VOD is way too big for a private equity firm to swallow.
VOD is probably going to benefit indirectly from increased M&A activity in the sector as it shines a light on current valuations in the sector, but the only direct M&A activity I can see is potential mergers, unless there is some really left field bid from Microsoft, Apple or Google who have that kind cash. We're certainly aren't going to get a bid from Cable & Wireless as they have committed to paying down debt, not increasing it.
Should be interesting. There's a trading update on Tuesday which could really shift this.
The BATS chart looks very messy over the last 6 months although the 50MA and 100MA have been providing resistance and the SP has bounced down from this with every rise. We closed just above the 50MA yesterday and the 100MA isn't too far away at around 2634. A break above that and we could see 2740 or 2850 by ex div day.
What's even more interesting though, is looking at the BTI chart. That is far more regular and uniform with a near perfect downward trendline that started on 15 June and has 5 touch points, which I think is the real driver behind the BATS SP, which looks messier due to the fluctuations in the GBP/USD exchange rate.
BTI closed at 34.42 on Friday, and that trendline sits just above it at at roughly 34.72.
Both SP's have also been trying to form a triple bottom for the last couple of months.
Lots of pressure building up here and I can see big SP moves coming next week. The BTI SP is squeezed between horizontal support and a downward trendline resistance - both of which are converging in the next week or so. That usually means the SP is going to breakout in one direction.
I think the update will be good and the breakout will be to the upside, but it could get messy quickly if the markets don't like the update and/or inflation/omicron fears send the whole markets loopy next week!
Either way, there would have to be something truly catastrophic in the update for me to consider selling up, as the underlying fundamentals are excellent.
Yeah I've built a position in the last few months so will make a few bob when it goes to 140p, which I think will be in the next 2-6 months. Plan at the moment is to sell around half then and keep the rest until around the 160-180p mark, although I think that could take another couple of years and I will reassess that second target and timescales next year.
I can fully understand people being very annoyed at past performance and wanting to vent. It's been a dog of an investment in the last few years at a time when equity markets have been surging.
Diversified equity portfolios have been delivering 10%-20%pa returns, and anyone who bought in at higher prices hasn't got a hope in hell of making up for those lost returns.
We are where we are though, and irrespective of your average price, the decision to add, reduce, hold or sell should be based upon the current situation and where you think the company and SP can go from here.
No I definitely didn't say I think it will get down to 90p. The only time I can see VOD getting to 90p is if the world goes mad - i.e. we end up in protracted lockdowns because of Omicron and the FTSE drops down to around 5,000.
I don't think will happen as Omicron doesn't seem to cause serious illness, although it's early days and you can't ignore the possibility that things could get worse.
VOD is definitely not a growth stock, it's a value stock. Growth stocks are sensitive to interest rate fluctuations not because they borrow lots of money - quite the opposite as many of them don't have any net debt as they are cash rich. Their valuations however, are based on projected future cashflows. In a low interest environment those future cashflows are worth more, so valuations are high, but when interest rates go up it's worth less so valuations and SP's crash.
Yes VOD does have a lot of debt, but through a combination of long term fixed interest debt and hedging rates on shorter term debt, their interest payments are relatively stable and are nowhere near as sensitive to interest rate fluctuations as you might think.
Value stocks such as VOD can actually do comparatively well in a high inflation/high interest rate environment, providing that inflation is higher than interest rates, and they can increase prices in line with inflation, as that can lead to increased profits. Dividend yields in a high interest environment need to increase to maintain the premium above the risk free rate (ie interest rates), so if profits don't increase enough to increase the dividend, then the SP would need to drop to increase the yield. That calculation though is far less sensitive to interest rate increases than the discounted future cashflow models used to value growth stocks, so you often see people dumping growth stocks to buy value stocks which can offset some of the downward pressure on valuations.
This is exactly what is happening on the US markets at the moment, with the NASDAQ (all growth) getting smashed, S&P 500 (lots of growth and some value) down half as much and the predominantly value focused DOW (and VOD ADR) down half as much again.
Going back to VOD, if you look at the charts and see through the noise of the last week, you can see that VOD has been in a downtrend from May to Nov, during which time the FTSE has moved sideways/upwards. That changed in November and VOD has been trending upwards, despite having an ex div day, when the FTSE has been moving down.
Sentiment is changing. As soon as this Omicron nonsense blows over this will go up.
Debt levels did go through the roof with the Reynolds acquisition, but debt levels are slowly coming down in line with the plans they outlined to the market.
The vast majority of BAT investors are also only in it for the yield, and BATS has one the most impressive dividend histories of any company - very consistent and always rising. With dividends reinvested BATS has been one of the top performers of the FTSE 100 for decades.
Management have stated their commitment to increasing the dividend in sterling terms, so cutting the dividend to pay down debt faster than they need to at the expense of delivering shareholder returns would go against everything they had previously promised, and I think the SP would get slaughtered as a result.
BATS is one of the few companies that gives good forward guidance and delivers on it's promises. I have no idea why the SP is still so low, but it's cheap as chips and won't stay at these levels. EPS should be growing quite nicely over the next few years with the cost cutting program and the ncp starting to turn a profit, which up until now have been loss making and a short term drag on profits.
12 month broker targets are around the 3,300 level, but I can easily see this getting to around 3,700 in 2-3 years and paying a nice, safe and increasing dividend in the meantime.
Just need a bit of patience....
To all of you who keep going on about debt rising and negative equity, you need to read the half year and full reports a bit more carefully and compare like for like.
Net debt was up marginally by circa 400m in the last half year report compared to same time period the year before, and the year before net debt had actually reduced by 4bn and in the FY report earlier this year net debt had again been reduced compared to the same time period.
Stop reading just the headline figure about net debt increasing over the 6 month period as VOD cashflow is seasonal so you're comparing apples and pears.
If you look at the shareholder funds you'll also see that each share has around £1.80 in net assets.
The dividend cover is pretty pants, but you also need to remember that current operating profits are good and increasing, but the reported profit is significantly reduced by large amounts of depreciation and amortisation relating to past acquisitions and the dividend is more than covered by free cashflow from operating profits.
VOD was certainly a rubbish investment a few years ago at £2+ but at the moment it is undervalued and the SP seems to have found a bottom. We've just had an ex dividend day followed the next day by the markets losing their marbles over Omicron, and the SP went down pretty much in line with the markets, whereas a few months ago it would have tanked.
Revenue and profits are increasing, albeit at snails pace, the SP appears to have bottomed out and the dividend is pretty safe and offers a good yield.
At this point in time it looks like a good investment to me, and hopefully once we find out the Omicron variant isn't going to send us all back into protracted lock downs and markets recover, I fully expect this to be heading back to test the top of the trading range at around 142p, and with some more M&A activity in the sector and at least one more set of good results, it could break out of that range and go higher.
Worst case I can see is briefly touching 90p if the world goes mad, but the div will still be paid and it won't stay there for long.
Nice to the SP starting to get back to where it was last week. We're already touching the lows of ex div day.
I didn't think we'd get such a quick snap back, although the markets have been bonkers not just in the last week, but for the last 2 years!
Last Friday Omicron was the next apocalypse, but now it's back to business as usual a few days later!
Interestingly that little snap back has built a much stronger base/set up on the charts for the SP to shoot towards the 142p mark, although I'm not convinced we've seen the end of the fears/volatility regarding Omicron.
Whatever volatility we do experience, I really do think the overall trajectory is going to be up with earnings slowly rising and the narrative starting to change on the telecoms sector from it being an underperforming, capital intensive, high debt sector into one of cheap valuations and M&A activity.
MarkGo - I agree. Perfect opportunity for OPEC+ to hit back at the release of reserves under the guise of Omicron. I'd be very surprised if they went ahead with the planned 400k increase, and without it the market is going to get tighter and prices will rise. Sleepy Jo and other world leaders have already played their hand and it didn't work, so prices will continue to rise.
Looking at the price action on Brent in the last 30 mins you can see how the market is manipulated. A sudden spike down to 69.65, which didn't appear to be on any news (I stand to be corrected) and was uncorrelated to the rest of the markets. Low enough to take out lots of stop losses and buy 'cheap' oil, then promptly shoots back up to 70.90.
Only thing us PIs don't know if that's the end of the move down, or just a dead cat bounce and $65 is the next short target before they load up on oil for the longer term.
Sharefall/Cong - I agree. Shameful, one sided reporting by the FT that caused massive movements globally.
Oxford Uni have come out this morning to say there's no evidence to suggest that the current vaccines won't help prevent severe disease. Spike proteins help the virus enter the system, and the antibodies the vaccines produce target those spike proteins to prevent infection. The spike protein mutations might mean that those anti bodies are less effective (or not effective at all) at preventing infection, but the vaccines also encourage T Cell production. Those T Cells target and destroy infected cells which is why vaccinated people have less severe symptoms. Those T Cells aren't as finnicky as the anti bodies, and aren't targeting the spike protein so are far less likely to be effected by the current mutations, so should carry on doing their job of preventing severe disease.
So it looks like we've probably got a highly transmissible variant and our current vaccines might not stop it spreading, but they should help to reduce the chances of severe disease in a variant that at the moment only causes mild symptoms.
We haven't got enough hard data to definitively prove all of the above, but that's how it's looking at the moment.
IF all that gets confirmed then happy days, although it will take a few weeks to get enough data to confirm it, and god knows what the markets could do in the meantime.
Moderna CEO is probably cacking his pants as their vaccine is more reliant on anti body production, so it might very well be useless against Omicron. The Oxford/Astra Zeneca vaccine works differently and seems to produce a much stronger T Cell response, so they are probably rubbing their hands now, especially as in the last few weeks they have started selling the vaccines for profit.
I think you’re right Smithy - one way or another this will be the end of COVID by next summer. It sounds like this is going to rip whether we like it or not as there’s community transmission in this country and many others.
Can’t see lockdowns coming back for another 6 months or so until everyone gets a new vaccine as that would crush many industries and countries who are already on their knees.
Hopefully the symptoms will continue to be mild and Omicron will actually be doing us a favour. Whether we like it or not, the only way out of this long term has always been natural herd immunity. All the lockdowns and current vaccines can do is help manage that process to minimise deaths, but the end result is inevitable.
Looks pretty good to me. VOD has recovered about 1/3 of the losses on Friday and has been slowly trending up since open, which is much better than the FTSE and is no doubt due to potential bid for BT.
We could very well be in for a rollercoaster ride over the next few weeks though as the world gets to grips with Omicron. More bad news and the markets could really tank, or if it turns out that this new variant really does only give mild symptoms and is indeed a blessing in disguise, then we could be in for one hell of a Santa Claus rally!
Looks like we are due for a bounce today. Been reading whatever I can over the weekend on Omicron and everyone seems to be focusing on how different it is and how more transmissible it might be, but virtually nothing on the severity of the illness - that seems to have been ignored.
Nothing wrong with a highly transmissible, heavily mutated virus that we don't have a vaccine for if all it does it leave you feeling rough for a couple of days - we've been living with the common cold since time began!
Fingers crossed that is what's happening, although we won't know for certain for a few weeks due to the time lag between infections and hospitalisations/deaths.
I'm simply holding all my positions through this as too much risk for me either way as still a lot of unknowns.
Wow - wasn't expecting to wake up to this bloodbath this morning! Worst day in the markets since April last year. Crazy seeing the Vix spike 15%, Oil down 5%, FTSE down over 3% down plenty of other shares 4%-8% down.
Lets hope it's an over reaction and this South African variant isn't really that bad....
Daniel - VOD ADR went ex div on the NASDAQ today (ie from US open) so the 40 point drop I mentioned earlier was from yesterday’s closing price of VOD ADR.
It was a fairly good day today for ADR holders as the drop was less than the dividend. It’s fairly meaningless though as the ADR price usually tracks the VOD price, not the other way around, and VOD was rallying today.
Nice to see a strong finish on VOD, although the ADR did drop another 9 points or 0.58% after UK close, although even that’s not too bad.
I’d be more than happy with a 114 finish tomorrow and a resumption of the upward trend after that
Daniel - I'm sure there will be some novice PIs who don't realise that, but those volumes aren't enough to move the SP. There will be investors out there who are specifically targeting income rather than total return. I know that sounds odd, but income funds are measured will often have set investment objectives of yield rather than total return, and some discrectionary managers may have similar mandates from some clients. It's an a**e backwards way of doing it as I always look at total return, but there's a lot of gloss and nonsense in financial services/products and people buy into it. Those are the ones buying in volumes, and they will also be the ones selling in volumes when the SP returns to pre ex div level, which is why you often see when SP rises to close the gap created by the ex div drop, it can often reverse and go the other way. Hedge funds and other professional traders also know this, so will be adding to the momentum up and down with very short term trades.
Daniel - I say almost certainly as that's what it's done every time for the last 5 years, either on ex div day or on the days that follow. It's a pattern that most FTSE 100 companies follow, although it's not an absolute certainty. Really good news for VOD, the telecoms sector or the markets in general tomorrow morning and it might not drop by as much as the dividend.
You're welcome. Very difficult to call on this short term.
SP broke through and closed above 100 MA, then retreated to bounce off the 50MA and close and hold above the 100MA again. The 20 MA is also about to cross up through the 50MA (at around 112.50) and all of that is usually the sign a breakout is about to happen which should take us to top of trading range (142p) at least.
The ex div movement at this SP is hard to call, as we know there is going to be a drop which will almost certainly be more than the div, although by how much we don't know. Usually the biggest drops ex div are when the SP has been near the top of trading range but we're not even half way there yet. There should be good support at 112.50, although we are a bit close for comfort for that to hold.
If it doesn't hold, then the previous low of 106 would be targeted, and it's a bit of shame that we didn't go down as low as 100 as that's an obvious target that hasn't been hit.
So charts / previous history is very inconclusive short term. I'll be holding as the only thing I can be certain of is that I'll get the dividend tomorrow, and with the last results, a commitment to the dividend, broker targets, and M&A activity in the sector I'm pretty certain at some point over the next few weeks/months we'll at least get to 140 again, although I know I'll have to ride out the bumps and be prepared for it to get to 100p before it gets to 140p.