With the recent falls in the FTSE 100, many blue chip shares have been selling at bargain basement prices. Telecoms and broadcasting business Vodafone (LSE: VOD) (NASDAQ: VOD.US) has looked particularly cheap.
So when the share price fell to 190p recently, I bought some shares. I think I bagged a bargain.
The difficulty with Vodafone since the Verizon demerger has been how to value a company that is so cash-rich and asset-poor. Vodafone is a business in transition. Normal metrics such as the P/E ratio are out of the window in cases such as this.
But the company’s recent interim results show that chief executive Vittorio Colao’s Project Spring transformation of the telecoms giant is progressing nicely.
Building its multi-play offers
The basic premise of Project Spring was to invest the money from the sale of Vodafone’s stake in Verizon in building high-speed voice and data networks and infrastructure, as well as buying into pay-tv and broadband assets.
By strengthening its telecoms infrastructure the company improves its mobile offer. By bundling mobile packages with broadband and pay-tv, Vodafone is providing the multi-play offers that rivals such as BT Group, BSkyB and Everything Everywhere have also been putting together.
Vodafone’s sales in emerging markets such as India, Turkey and Egypt have been progressing well. The difficulty has always been in Europe, where revenue and profits have been eroded during the Eurozone crisis and the slowdown in the main continental markets. But the latest results show that this business is finally recovering.
Strengthening in Europe
4G coverage in Europe has increased from 32% last year to 59% this year, and should reach 91% by 2016. This has led to growth in data usage which is accelerating.
In Germany, the acquisition of Kabel Deutschland, which is itself a growing business, is beginning to reverse the falls in service revenues. Similarly, in Spain pay-tv company Ono is driving growth in this country. These days the companies which make money are not those which offer the cheapest mobile tariffs, but those which provide the most appealing multi-play deals.
So these first signs are good. But Vodafone is still at the early stages of its turnaround, and it has got substantial cash reserves to spend. I am optimistic that future acquisitions will add further value to this company.
As Vittorio Colao’s strategy plays out, I am happy to watch the company steadily increase in value, and collect Vodafone’s high and rising dividend cheques.