Investment Column: Vodafone's boss has made the right call

Sportingbet; French Connection

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The Independent Online

Our view: Buy

Share price: 155.05p (-6.45p)

Things seem to be looking up for Vodafone, who shareholders were cheered a few weeks ago by news of the long-awaited dividend from its US joint venture Verizon Wireless. The company's $4.5bn (£2.8bn) share answered some of the six years' worth of questions over the future of the venture.

Another issue has been the operations in India. If tensions were strained in the US, they broke out into open aggression with Essar, its venture partner in the country. In such an important emerging market, it was crucial for the operator to get a handle on its activities, and following an announcement yesterday, it seems to have done just that.

Vodafone unveiled the sale of 5.5 per cent of its holding in Vodafone Essar to Piramal Healthcare, in order to help it to satisfy the country's foreign-ownership laws. The deal is worth about $640m, but more interestingly, it could pave the way for the FTSE 100-listed company to float the business.

Under chief executive Vittorio Colao, Vodafone has been knocked into shape in the past few years. He has adopted a sensible policy of cleaning up the portfolio by selling minority stakes in foreign business, and has used the proceeds to reduce debt and release capital for shareholders. His progress has been encouraging, and bodes well for the company.

Turning to the shares, Citi analysts predict a dividend yield of 9 per cent for the next financial year, which is not to be scoffed at, particularly in light of the prevailing market turmoil. There is also the valuation, which, at 9.9 times forward earnings for next year, is hardly pricey. Buy.


Our view: Avoid

Share price: 48.25p (+0.5p)

Suddenly, Sportingbet is the belle of the ball, but will its flirtation with Ladbrokes lead to a marriage? Probably only if the Turkish relatives are shut out of the party.

The last time Ladbrokes headed for church it ended up jilting 888 at the altar. Part of the reason was perceived regulatory risk. Sportingbet's Turkish business carries similar issues. If it can sell, the marriage may yet go ahead, but that's no certainty.

Yesterday, Sportingbet was keeping mum. It's trading statement did say that the trends of the previous nine months will continue: Australia and "emerging markets" are doing all right, but Europe, unsurprisingly, less so. And yet, even with the deal froth boosting the shares, they are still well below the 61p level at which we said avoid last November.

On valuation grounds the stock is hardly expensive, trading on just about eight times forward earnings. But we think Sportingbet may struggle without a partner such as Ladbrokes, not least because the environment, from a regulatory and taxation standpoint, is set to favour the bigger firms in the long run. So, despite the takeover talks, there is still no good reason to be in these shares.

French Connection

Our view: Hold

Share price: 64p (+6p)

Investors piled into French Connection yesterday after it delivered an upbeat update on trading for the six months to 31 July.

The retailer said its profit for the first half will be "in line" with management expectations, adding that it had delivered net cash of £30.5m, which was ahead of expectations, and that its 2011 winter wholesale orders are ahead of last year.

The group also posted UK like-for-like sales in positive territory, which is no mean feat given the conditions on the high street. The retailer's shares also look affordable, trading as they do on a forward earnings multiple of just over eight times.

And yet, we cannot take our minds off the wider economy. This company is doing well, but the high street, and the consumer, in general is struggling, arguing against a buy view.