I’ve been a little disappointed about Vodafone (LSE: VOD). One of the fastest growing and most fashionable stocks of the 1990s has seemed to have faded from its former glories.
In 2013 Vodafone announced its demerger from Verizon; it also announced Project Spring. This would use the funds from the demerger to build a company that was no longer dependent on low growth markets such as mobile and fixed line telecoms in Europe. It would instead look to emerging markets, to the fast growing pay-tv market and the growing number of multi-play deals that bundled together telecoms with broadband and television.
The Liberty deal has fallen through
This plan started well, with the takeover of firms such as Ono in Spain and Kabel Deutschland in Germany. But it lacked that big, transformational deal that would make all the difference. The asset swap with Liberty Communications was going to be that deal. And there were some prize assets on the table, notably Virgin Media, and a range of cable companies scattered across the world.
The fact that this deal has now fallen through means that Vodafone is now a little stuck. The grand vision of Project Spring seems no longer quite so grand. And the question is: what is Vodafone’s strategy now?
As far as I see it, what Vodafone is concentrating on now is building infrastructure such as 4G networks and fibre optic broadband, as well as expanding into emerging markets, where much of its new business increasingly is.
In Europe, Vodafone will build on its strengths by adding pay-tv and fixed-line telecoms to its mobile businesses.
And Vodafone has been out-manoeuvred by its competitors
To be honest, I see this as incremental improvements, while competitors such as Sky and BT have made dramatic strategic moves. Vodafone hasn’t really been able to match Sky’s purchase of Sky Italia and Sky Deutschland, or BT’s purchase of Everything Everywhere and its move into pay-tv.
That’s why, if you’re investing in this sector, I see Sky and BT as the better growth plays, whereas Vodafone is worth buying into for the income. But I would not expect any lightning fast growth from this investment and income fund stalwart.
However, a dividend yield of 5.49% is certainly appealing, and I see this as one for the cautious dividend investor.
As the nights grow longer and the air gets colder, it is a little difficult to think of spring at this time. I suspect Vodafone investors must feel the same.