Member Info for Longish

When industries are not spending then suppliers arent selling. I think its a case of 'tide lifting all boats' - Vod simplification/ cost reduction activities to do in the meantime and accelerate out on the upturn. Sitting in a quality share with a div is preferable to one that doesn't ..

EBITDA (cash) growing €0.6Bn yoy so div easily maintained or even trimmed if needed one off

Weekend FT front page reports UK Gov pushing for national roaming agreements to address 'not spots'. The industry believe this will require new infrastructure and the problem isn't resolved by sharing masts or spectrum. If the government brings in legislation to force the issue, we might see the separate development of urban and rural networks, perhaps an IPO or private equity sale etc

We might see similar initiatives across the EU unless Ofcom reverts to being OFTEL in a no deal post Brexit world?

Ofcom link below to a paper explaining not spots..
https://www.ofcom.org.uk/__data/assets/pdf_file/0024/46158/not-spots.pdf

Agree. One (theoretical) measure of the SP value is the current value of all future div distributions discounted at the shareholders required rate of return. Roughly 14p/10%=140p.

On reflection, I would have lost less (paper loss) if I had stayed holding cash. Instead of losing 10% pa in this market phase, I would only have lost 2.1% to inflation. Its real for me in pension drawdown but as I didnt pay tax on the original investment, its perhaps not so bad..?

Last year the Fed wanted to raise rates rapidly I believe to bring the market correction to the RoW more quickly. Trumpenomics have tempered that..The EU are annuitising the correction with QE/QT reinvestment and extending the period of time for the correction. General economic conditions are unlikely to change rapidly. Market forces doing the rest...

I am sticking with Vod as most (maybe all) of the correction is priced in imo? Moving around the market increases the probability of picking up another (10%) correction faster than the glide path I am already on.

This is only my view of course. I am disappointed in the Vod SP but I generally think the Vod management team are good enough for the tasks at hand with one or two refreshed execs as we go.

Incredible how time flies when you are having fun. Only 6 weeks and we are at FY financial results. I am sure NR has paced his delivery and will position his next full year for success. GLA

I hope there aren't any skeletons. Vod is pretty good at catching, fixing and reporting issues. We will have to wait for the annual report but I would be surprised if PWC have anything to say at the end of their tenure and it would be too early for E&Y to express any view..Rotation of auditors is actually a great quality control measure..

Re Patisserie Valerie, there have been a succession of mishaps in the market. It would be interesting to know if there is currently a higher level than the long run average ..BT Italy, Petrofac, MetroBank etc?

Dan, Gerry,

Until Vods investments in the rest of the world recover, its immediate fortunes are tied to Europe and Mr Draghi who will remain accommodative on interest rates for as long as is necessary..

Vodafones optimal debt equity mix and its weighted average cost of capital to maximise its share price is 'the point at which the marginal benefit of debt equals the marginal cost'.

Even if interest rates rise, the interest cost is tax deductible and it remains more efficient to use a debt/equity mix to fund investment at lowest average cost. The lower the cost, the higher the SP. In this context, perpetuity means for the period of time Vodafone remains trading.

https://www.investopedia.com/terms/o/optimal-capital-structure.asp

As per an earlier post, here is the link for EU QE maturing securities which from January are being reinvested in the secondary market of EU countries. There has been 4 years of QE to the end of 2018 so presumably there can be 4 years of reinvestment to the end of 2022 ie securities with accommodative/ low rates. The EU QE monies at the end of 2018 were c€2,800Bn according to the table below. Globally there are currently c$10 trillion negative yield bonds.

Also, the FED may cut rates from here. In any event, I would be happy with 6% yield if the SP increased back to 233p.
https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html

VODAFONE CONCLUDES TENDER FOR STATUTORY AUDIT
Vodafone Group Plc ("Vodafone") today announces the conclusion of a competitive tender process for its statutory audit contract. The Board has approved the appointment of Ernst & Young LLP following the completion of the audit of the Group's accounts for the year ending 31 March 2019. The appointment will be subject to the approval by shareholders at the Annual General Meeting.

David Nish, Chairman of the Vodafone Audit and Risk Committee, said: "We thank PricewaterhouseCoopers LLP for their significant contribution as Vodafone's auditors over recent years and we look forward to working with Ernst & Young LLP."

Expect PWC will be focussed on the P&L while E&Y will be focussed on the Balance Sheet carried over to their tenure
http://investing.thisismoney.co.uk/news/article/id/6314179/

Interesting. A 5G phone should work on a 3G/4G network, but a 3G/4G phone wont work on a 5G network.
Sounds like the starting gun has fired?

Hi Moniman,
I think that's fair. My reading is that NR can do a mast sale/ share country by country, coincident with a good in country deal. In the case of Germany, clearance for the Liberty deal and/ or clear market rules for 5G (spectrum auction/ licensed participants etc)

Hi Dan,
Vods obligation is to Shareholders and Regulators. IMO the debt is taken on to meet obligations to the regulator/ society etc. As we expect society to continue longer than any/all products lifecycles only the incremental cost of debt is relevant against the product trading cashflows ie Vod doesnt pay the debt back, it rolls the debt over until it isnt a going concern anymore. When it is no longer a going concern, the debt is repaid from the net realisable value of the balance sheet assets....which are currently>€60bn according to the last statutory accounts.

Debt
Has the market mispriced Vod?
Vod is a regulated business. Debt (..QE/QT) servicing operations is an incremental marginal cost. In the case of Vod c.€0.3Bn interest last FY. If Vods only obligation is to shareholders then paying back debt is paramount. But Vod is a regulated business where debt can be held in perpetuity to encourage investment, innovation, competition and deliver consumer/ citizen welfare benefits. Onle the incremental cost is relevant to the FCF and ability to pay divs.

IMO Vod is mispriced and the SP will rise as QT kicks in over the next few months

Gerry is right imo. Anyway, the streets arent running red with blood!! Top up if you have FCF as we must be nearer the bottom than the top or spread your risk in another mispriced div payer with a future>5 years.. I have never met anyone who bet their house and won. I have met several people who bet their house and lost!!!

Brexit probabilities = paralysis by analysis LoL.

Needs a charismatic leader and strong vision to polarise all the social, political and economic issues.

Its not Corbyn or May... and EU bureaurocrats have a mountain of QE/QT to launder in the markets.

Trade deals/ new deals could take 5-10 years

Jack, Dan,
Its true revenues have decreased across the telco sector. But data revenues on rescaled, lower cost, flatter networks are growing to offset at ebitda. A decrease in legacy product revenues is a good thing. Its why we buy our mobile services in bundles of data rather paying per minute of usage. We want smartphones, not just voice calls. And the regulator forces compliance with price caps so that a consumer can use Vod service in europe without bill shock. So revenues will settle on the new growth path. EBITDA will settle on the 5G growth path.

And if all things fail. Vod can put up its prices...

Dan, Jack,
I agree it is simplistic to use FCF as proxy for div sustainability when they is a stack of debt on the balance sheet to be paid of one day. But it is a useful rule of thumb whilst waiting for pricing signals like Liberty clearance etc

The capital asset pricing model 'is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital'. Vod investors get 9% return because of the higher level of risk we hold versus the rest of the market. See belowlink
https://www.investopedia.com/terms/c/capm.asp

If risk averse posters want to maximise return based on a given level of market risk they can optimise their portfolio. See below link
https://www.investopedia.com/terms/m/modernportfoliotheory.asp

Hi Dan, thanks.

We have to wait for FY results but last year incremental interest on debt was reported as €0.3Bn and FCF target this year is €5.4Bn.

Of course the numbers will 'flip flop' from year to year but the scale and sustainability of FCF underpins current and future dividends

Incremental interest on debt c (€0.3Bn) pa
Incremental free cashflow €5Bn pa
Vod can generate €5Bn FCF per annum. Whats not to like?

SP is mispriced due to current sentiment, nothing to do with Financials.
Capital reinvestment cycle is c8-15 years, not 1 year!!
8*€5Bn fcf =€40Bn.

Vod has lots of these options because of its organic and acquired footprint. Great that banks are finally thinking and pricing them. So far the SP seems to reflect doing nothing and the cash (FCF) slowly running out..

' no Brexit'

Not sure why no Brexit, no deal or soft Brexit impacts Vod SP except sentiment which is already priced in IMO.

Vod tariffs/ regulation are already in line with WTO/GATT rules as are all the EU. No mention of Vod/ telcos in the draft agreement that I can see.

Each EU country is on a slightly different glide path when complying with WTO/ BEREC etc, hence the different timeframes for acquiring 5G spectrum country by country (Vod say c 8 years on average ie 8*€5.4Bn FCF...)

Clearance of the Liberty deal will be the strongest price signal we canl get

137/8 may have been a double bottom last week. I remain optimistic. However, a weak £ seems to help..