Investment Column: Vodafone still sending out strong signals

Edited,James Moore@JimMooreJourno
Tuesday 14 December 2010 01:00


Our view: Buy

Share price: 168.55p (+3.25p)

The people are revolting; at least that's what the management of Vodafone will be thinking as they prepare for another round of protests and sit-ins at stores around the country.

A group called UK Uncut has already staged several demos at Voda, and at the stores of others it deems not to have paid the appropriate amount of tax, such as Philip Green's Topshop. Whatever the legitimacy of the claims, the public demonstrations have painted the group in a somewhat unfavourable light of late. While it is unlikely to have filtered heavily through to the stock, the share price has certainly come off since the end of November, after investors were disappointed by the first half results.

But beyond the protests, Voda seems to be in quite a good position. It is making a bet on the growth of smartphones, which seems sensible, and recently launched new tariffs that allow cheaper browsing while abroad. Analysts are backing revenues to grow.

In the longer term, there could be some light at the end of the tunnel for an issue that has dogged the company for years. It emerged earlier this month that Verizon Wireless could resume paying dividends to its parents Verizon and Vodafone in 2012. Or the group could sell the stake – valued at $34.4bn – entirely. Either way it is likely to be positive for investors.

The group has been selling non-core assets of late, including its stake in China Mobile, and is rumoured to be close to a sale of its 44 per cent stake in French mobile group SFR. This could prompt a share buy-back at some stage next year.

Bank of America Merrill Lynch analysts have the stock on a price of 8.7 times estimated full-year earnings for 2011 and predicts the dividend yield will rise from 5.3 per cent to 7.16 per cent two years later. Especially with recent weakness the stock is worth picking up. Buy

Intl Personal Finance

Our view: Hold

Share price: 352.2p (+9.3p)

International Personal Finance is one of those horrible companies that makes its living by offering small loans at high rates of interest to people who are faced with the Hobson's choice of either paying its prices or going to the local loanshark who will break their legs if they fail to pay up.

Where it differs from the likes of Cattles or Provident Financial is IPF's business is all done overseas (it was in fact spun out of the latter). And like it or not (we would be in the not category) the model appears to be working.

IPF's trading statement was notable for its brevity but what it did say is that it grew both customer numbers and the amount of lending but also improved collection and saw a decrease in impairments. Costs remained under control.

The company will further derive benefit from a cut to Hungarian corporation tax in the long run, and should report results in line although its key period is just coming up: the approach to Christmas when its clientele are particularly strapped for cash.

The shares have put on 25 per cent in three months (post refinancing) against 6 per cent for the market as a whole. But there's still potential for growth through international expansion, exposure to growing emerging markets and economic recovery. So the 13.4 times forecast full-year earnings at which the shares trade isn't overly pricey. Hold if you can bear to.


Our view: Hold

Share price: 400p (+3.25p)

As long as renewed snowfall doesn't block up the car parks of its shops or hinder online deliveries, Majestic Wine appears well-placed for a bumper Christmas. The 160-store retailer hasn't looked back since it halved its minimum purchase from 12 to six bottles in September 2009.

The policy is attracting new customers and enticing existing ones to shop more frequently, with the growth in transactions comfortably offsetting a decline in average spend. This was a key driver behind Majestic's growing pre-tax profits by 20 per cent to £7.3m for the half-year to 27 September.

In addition, the company raised a glass to fizzing online revenues and sales of fine wine – £20 per bottle and above – higher by 20.2 per cent over the period. All these bubbles have seen Majestic's share price nearly double this year after sinking to 213.15p in the first week of January. They now trade on a forward earnings multiple of 18.7, times, a bit frothy really. But next year may not be as bad as some fear, and there are plans to increase the number of shops to 250. So hold.

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