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The European telecommunications industry is experiencing a consolidation period at the moment as operators scramble to combine internet, mobile, television and fixed line services into one simple package known as quad-play. Let’s face it, you’ve probably been getting (and binning) reams of junk mail offering you just that.
It’s a big shakeup. So far we’ve seen the likes of the UK’s BT and Sky teaming up with Spain’s Telefonica and fellow UK giant EE respectively, making it much easier for all four firms’ service users to access all their tech needs in one place.
There remain two major global players that have yet to join the rest of the kids in the quad-playground. Vodafone Group (VOD) and Europe’s biggest cable operator Liberty Global have been the subject of much speculation of late with all manner of news stories and analyst commentary favouring the two for a merger. With Vodafone being a major UK blue chip stock, we thought it best to give it some attention as a potential mover & shaker in the months to come.
In this report we look at the situation regarding Vodafone Group, both from a technical and corporate story standpoint in an effort to help you decide what to do in both the near and longer-term. We don’t want to focus on what people already know either – the M&A story is only one part of what makes Vodafone an interesting stock.
Vodafone would appear to be lagging behind its UK peers having failed so far to strike up a deal with a complimentary partner. Furthermore, it may well be lagging its pan-European ones too with the likes of France’s Bouygues Telecom being on the receiving end of a bid from Altice SA. But it’s never been wagered that Vodafone will be bought by Liberty – only that the two may merge, so that the reversion to uptrend experienced by Vodafone shares in 2015 should not be attributed solely to takeover speculation. Vodafone has a healthy balance sheet and a major global presence. It could be that it is simply awaiting the best opportunity. Vodafone is in no rush.
It was recently revealed that the Murdoch family last year rejected an informal approach by Vodafone for their 39% stake in Vivendi, the pan-European TV group that owns French firm Canal+. This shows Vodafone in a more aggressive light than perhaps it has been recently in the news. A lot of recent M&A chatter has focussed on Vodafone as the underdog to Liberty Global. John Malone said Vodafone and Liberty would be a ‘great fit’; he would have been foolish to mean Vodafone is a ‘great buy.’
On the contrary, the two are in early discussions about asset swaps rather than a full blown merger which is bullish for both companies. Don’t underestimate the impact that seemingly benign asset swapping can have on the attractiveness of a stock – after all, it will involve neither the premium required and associated risks that come with a full blown acquisition. Furthermore, Vodafone has the potential to really reinforce the ‘global’ aspect of Liberty… Global.
The 2013 divestment by Vodafone of its 45% stake in US Verizon Wireless to Verizon Communications initially lined the company’s coffers to the tune of £86bn in cash and shares, of which £61bn of the same was distributed among Vodafone’s shareholders. A further £6bn in planned investment over subsequent years leaves a healthy £9bn tucked under Vodafone’s mattress.
Markets were rightly concerned that this was an indication Vodafone was downsizing, at odds with more recent talk of mergers and asset swaps, but Vodafone offloaded a stake in a wireless venture. It’s already a huge wireless operator. Streamlining in one direction could allow for more investment in another and doesn’t necessarily mean a change in size.
The trend is your friend, they say. Telecoms sector consolidation in one way or another is certainly of the moment. Vodafone presents opportunity to both the short term trader and longer term investor.
All in all, Vodafone shares are currently in an uptrend driven by market confidence. Volatility is there, but this year has so far been devoid of large, unexpected and potentially damaging (yet opportunistic) swings in Vodafone’s share price.
Source: Bloomberg, 24 Jun 2015
Green = most bullish;
Red = most bearish;
Shares trading near 240p on 25 Jun
Source: Bloomberg, Alpha Terminal; 24 Jun 2015
Source: IT Finance
A steady uptrend from mid- 2002 lows is highlighted by the long-term chart above (14 year, monthly). While shares look to have met some form of resistance around the average broker target of 242p, higher highs and higher lows indicate some more upside potential over the longer term. Of course, shorter term corrections are also evident – perfectly normal within any trending market.
Source: IT Finance
Shares are currently trading close to the average broker target of 242p and are not spending a great deal of time far from the 50-day moving average, indicating opportunities to profit from short, sharp corrections towards it.
Meanwhile, VOD shares continue to plod north overall with confirmation of the uptrend in the form of Nov 2014’s break above the 200-day moving average and subsequent golden cross. Will the 200-day MA remain supportive of 2015’s rising channel? How do you see this sitting within the longer term view with 2001 highs (and Exane BNP’s recent target) of 300p still some way above the current price?
Note that both the golden cross (50-period crossing above 200-period MA) and the dead cross (50-period crossing below 200-period MA) are reliable yet delayed indicators that confirm trends rather than forecasting an imminent reversal. In this case the golden cross is confirming an uptrend with respect to the 50-day and 200-day moving averages.
Whatever your analysis tells you – tradable opportunities in Vodafone Group are sure to present themselves in the coming weeks and months. At Accendo Markets, we pride ourselves in providing you with the information you need to come to your own conclusions and trade the financial markets the way you want to. Don’t miss out! Join us now.
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research