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On the eve of today’s first half results, Vodafone shares were down a whopping 39.7% from January’s 2.5yr highs, trading 9-year lows. The driver was a combination of concerns about slowing organic growth/competition, overspending to reignite growth (e.g. 5G, International) and the risk of the dividend being slashed/re-based to preserve cash and help deleverage a big debt pile.
A big first half loss certainly doesn’t make for great reading, but it can be explained by an exceptional loss related to its disposal of Vodafone India. And this was easily countered by a good news on several fronts;
So gains of 8.5% today (adding 14pts to the UK 100 ) are understandable, traders breathing a collective sigh of relief. It may even mark the early days of a bullish turnaround, having escaped from a 3-month falling channel. Work to do, for sure, but it’s the best results-based news to have benefited the share price this year. The only other big positive moves this year were linked to its acquisition of UK 5G spectrum in April (+3.3%) and activist investor Elliott Advisors taking a stake end-July (+3.6%).
With the dividend safe for now, and the outlook for costs and cash generation looking more rosy, might the shares see renewed interest as both an income and capital growth play, helping them retrace some of 2018’s annus horribilis?
Mike van Dulken, Head of Research, 13 Nov 2018
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