Private Investor: Vodafone's troubles are most investors' business
Saturday 04 March 2006
If I were a much wiser soul than I am, I would have sold all my shares in Vodafone by now. What a disappointment! While the rest of the stock market storms on (by fits and starts), Vodafone seems almost alone in being left behind. Well, not alone, but because of its size and weighting in the FTSE 100, its sluggish performance has become embarrassingly conspicuous. It accounts for about 5 per cent of the entire index, so the ups and downs of this one company matter to everyone.
If you have a tracker fund or a pension fund that has any amount of money invested in what we used to call "blue chips", or if you have a holding in virtually any general unit trust, investment trust or open-ended investment company, then you have a stake in Vodafone. Therefore, you ought to know that your direct or indirect investment in Vodafone has tanked, and tanked at a time when just about everything else is moving in the opposite direction.
It's difficult to recall all the woes that have befallen the company, but there's always some bad news or other knocking around. Maybe it'll be another story about its disappointing Japanese arm, or another instalment in the American saga - it's in a terrible tangle in the US because it almost but not quite controls Verizon, and seems able to get its hands on control, thus leaving Vodafone in the worst of all worlds.
The world of mobile telecoms, which once scared the fixed-line operators so badly, is itself going to come under more and more pressure from the switch to voice-over-internet-protocol traffic. Plus there are the usual competition issues and regulatory threats. Vodafone even plans to stop sponsoring Manchester United, which might suggest Man Utd are about to enjoy a winning streak.
Last week, we were treated to a fall in the Vodafone share price on eight consecutive trading sessions. Only a few months ago, it was testing the 150p mark; now it's crashed below 110p and, despite some rallying, I wouldn't be shocked to see it bouncing around 100p before too long. At any rate, it's a long way off its peak of 400p-plus, and not so far from its all-time lows.
No surprise, really, when you have Vodafone announcing on Monday that it was writing £28bn off the the value of its business assets in Germany, Italy and Japan. It also cut its revenue forecast, another huge let-down for those of us who were beginning to see Vodafone as a buy just on the grounds of its yield (currently 3.9 per cent). It's trading on a price-earnings ratio of just over 11, about half that of Virgin Mobile and the recently taken-over and delisted O2 company.
The question remains of what to do with the shares. The case for dumping Vodafone looks strong, but I cannot believe that the institutional shareholders, the big boys on whom private punters have to rely to look after their interests, are going to let things ride at Vodafone. They've already voiced veiled criticisms of its boss, Arun Sarin, and I don't see why he should hang around if he's not able to squeeze a bit more money out of 280 million customers.
As the shares dip towards a quid, they may even be worth picking up, just on the grounds that they're so oversold. I've still not convinced myself that's the wise thing to do, though.
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