By:
Anthony DiSanto, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
- Vodafone Group Plc
(NYSE:VOD) provides international
telecommunications. They offer voice, messaging, data, and fixed
communications to individual customers and businesses.
- The
stock price of Vodafone has felt significant pressure from the United
Kingdom’s vote to leave the EU, as well as from their bidding war in
India.
- Continued
focus on the Internet of Things in addition to improving the speed and
connectivity of their network.
- Plans
on releasing 5G by 2020 while transitioning consumers from 3G to 4G.
Key
points: Due to Brexit, the stock has been unfairly punished
and has been declining since the event occurred. This is increasingly
devastating because VOD, upon the completion of Project Spring, was beginning
to realize the fruits of their labor with recovery in European sales.
Regardless, they are
continuing to push forward with the expansion of their fixed line and mobile
services. Currently, they realize over 21% of their revenue from fixed line and
the majority of their growth is from data. The average usage of data per
consumer has growth to 1.1 GB, which VOD plans to capitalize on. This has been
shown by the number of 4G growth over 100% to 4G consumers growing by over 100%
to 53 million users in the last quarter.
To maintain their
competitive advantage and continue to profit from the increase in data
consumption, VOD has been investing in improving the efficiency of their networks.
They also are forging ahead with the internet of things and making sure their
networks can support multiple devices. On the fixed line side, they want to
provide gigabit speeds as well as providing new services to homes and offices
at attractive prices.
Next year Vodafone plans
to introduce Narrowband IoT, improving their signal strength by six-fold and in
addition to upgrading their fixed line to DOCSIS 3.1, which offers
multi-gigabit speeds. VOD also plans to update their billing and CRM system to
improve internal efficiencies. Furthermore, by 2020 they will have 5G operating
in the first few cities and will begin a migration of 3G to 4G.
What
has the stock done lately?
Over the las month the
stock has declined and took a beating at the end of October. Ofcom, the
regulator and competition authority for the UK communications industries, fined
VOD £4.6 million for breaches of consumer protection rules. Outside of the UK,
Vodafone is positioning itself to secure a large merger in the Netherlands with
Ziggo, by selling their Dutch wireline operations. If this passes in addition
to a positive earnings release next week, November 15, the stock could turn
around.
Past
Year Performance: VOD has decreased 15.88% in value over the
past year. The UK based telecom provider has faced hardships, mainly due to the
Brexit which occurred in June. Until that decision was made, VOD realized 7.53%
in stock appreciation since December 31st. Since then it has moved
sideways for the most part, with some uncertainty from the bidding war in India
and the recent fine, driving the price down further.
Source:
FactSet
My
Takeaway
Although VOD has taken a
big hit with the Brexit, I believe that with their improvements from Project
Spring and growth of their consumer base they will post positive earnings next
week. The uncertainty of what will occur with Brexit after news was released
that Parliament must vote on whether the UK can leave or not has continued to
weigh on the price of VOD. Additionally, the upgrades to fixed-line, signal
strength, and overall firm will bolster results going forward.
Source:
FactSet
