The Lemon Fool

Afternoon all

I'm not thinking of selling VOD, but may think more seriously when it comes to topping up time again. A pal has sent me info on a fund manager who is selling VOD because of a number of concerns. I am, of course, fully aware that we are not in the business of fund management and that they could be totally incorrect. However, as it is a HYP stalwart for many and in the interests of clarity and the willingness to share information, thought I'd share what I was told:

The fund managers had met with the CFO (soon to become CEO) and was impressed with his strategic clarity and grasp of the business. The managers were concerned about competitive pressures not abating in their core markets and also in Italy where Iliad are in the process of launching a new mobile service. The managers believe that the only way the company can become cashflow positive after dividends and mobile spectrum costs is through aggressive cost cutting. They say that whilst there is plenty of scope to improve productivity, they fear it will be competed away. Finally, several of their subsidiaries are carrying significant levels of debt and may, in time, need capital injections which could further weaken the Vodafone balance sheet.

As I say, that's one fund manager's grasp and there will be many other dissenting views, but I just thought I'd share.

Cheers, OLTB.

Forget about all that.

Get out in the garden, have a beer, and enjoy the weekend.

Yes, sorry Moorfield - I'm not a great Doris.

Hi OLTB

VOD's low dividend cover makes me think twice before including it in my HYP. I had planned to add it early next year, so will look again then. This article from Dec 2017: fool.co.uk/investing/2017/12/10/which-is-the-better-dividend-stock-national-grid-plc-or-vodafone-group-plc compares VOD with NG.

As an aside, decreasing and low dividend covers has become worryingly common in the universe of HYP candidates over the past few years, unfortunately.

OLTB wrote:I'm not a great Doris.

I'm not sure Doris ever lounged in her garden drinking beer ... perhaps a refreshing cup of tea or two.

I updated the table for VOD on free cash flow for 2018 (figures to the end of march).

Note that the Free Cash Flow per share is 19p and is the first time for many a year that it has exceeded the dividend - 15 euro (13.12p **).



If "competitive pressures" are tough for VOD then surely 'iliad' will face the same pressures (including competition from the likes of Netflix & Amazon in their main areas of pay TV...and perhaps also from BT in Italy ).

I had a quick google of "iliad" on their Italian website (OLTB mentions Italy specifically - note that iliad are a French company).

In Italy

https://www.iliad.it/

I must admit, their offer of 30GB of 4G data and unlimited minutes to 60 countries for ~6 euro per month will shake things up).

(I also note in the small print that iIiad's offer is limited to the first 1 million customers.)

However, Italy is just one of VOD's markets.

(**) Exchange rate €1 = £0.8751 used to calculate yield (exchange rate as at 15-Jun-18)





A little bit on Iliad

iliad SA provides retail telecommunication services in France (8.3 Billion Euro market cap).

Iliad has ~13.7 million mobile users whilst VOD has 536 million (figures from SimplyWallStreet)

-It offers its subscribers the Internet access solutions under the Free and Alice brands; telephony services; television services with 600 channels;
-catch-up TV and video on demand, and video games,
-subscription to pay-TV packages and channels consisting of Canal+, beIN Sports.
- The company also provides hosting services, including shared hosting services comprising Website hosting
- In addition, it provides various mobile services, such as voice calls, texts/MMS, and 3G/4G mobile Internet services, as well as voice mail, caller display and usage monitoring; and sells mobile phones. As of December 31, 2017, the company had approximately 6.5 million broadband subscribers and 13.7 million mobile subscribers.

-Iliad SA was incorporated in 1987 and is headquartered in Paris, France.

monabri wrote:I updated the table for VOD on free cash flow for 2018 (figures to the end of march).

Note that the Free Cash Flow per share is 19p and is the first time for many a year that it has exceeded the dividend - 15 euro (13.12p **).

The big dividend drop that table shows between 2014 and 2015 reflect the fact that Vodafone shareholders lost about 5/11ths of their shares to the 6-for-11 consolidation that was part of the big Vodafone/Verizon corporate action: dividends actually rose from 11.00p to 11.22p per share between the two years. That consolidation means that shareholders will have lost getting on for 5/11ths of their income from the holding, of course - but the rest of the corporate action meant that they got about 5/11ths of the holding's original value back as cash plus the value of Verizon shares they received. And they could have sold the Verizon shares and then used the sales proceeds to at least largely restore the number of shares in the Vodafone shareholding and thus the lost income: it would be somewhat inconvenient and cost something to have to do a couple of trades, of course, but any income drop would be nothing like as much as the ~40% implied by the table's 0.23 -> 0.14 figures, and it would be most consistent with their original decision to be invested in Vodafone shares...

Not saying that a HYPer has to have done that, of course (*), but if they chose to do anything else, it was presumably something they considered better for some reason (which could be any or all of higher income, safer income, less hassle or other reasons I haven't thought of). So in terms of what the company has done, as opposed to what the investor chose to do in response to the corporate action, I don't think that whatever adjustment (probably multiplication by 11/6) has been made to arrive at the 0.23 figure for 2014 makes sense, either in terms of the dividend per share or in terms of benefits to the shareholder.

So basically, the dividend figures for 2013 and before in the table seem very questionable to me. I don't know whether the free cash flow figures are equally questionable, and haven't tried to work it out because while I like the general principle of free cash flow, I don't know of any way to calculate it I find satisfactory. But just the questionable dividend figures are enough to make me very doubtful about anything the table seems to say about 2013 or earlier years.

(*) And indeed, FWIW it's not what I did: I sold the Verizon shares and purchased shares with the sales proceeds plus the cash, but they were mostly (or possibly entirely) shares other than Vodafone, partly because the Vodafone holding had been moderately overweight before the Vodafone/Verizon corporate action, and partly because Vodafone without its previous holding in Verizon Wireless didn't seem as attractive a HYP share to me as it had been. The jury is still out IMHO about whether I was right about the second reason!

Gengulphus

FWIW I've been loading up on Vodafone during the current weakness. VOD is now my largest holding. I understand the concerns raised above which are valid. Today the Indian Department of Telecom is going to clear the Vodafone Idea merger. Vodafone will hold 45.1% of the largest operator in India (26% Birla Interests, 28.9% Idea shareholders). The mother of all tariff wars is going on in India presently, I have faith in the long term potential of the market........

To follow up on the table by Monabri, not only does the table not take account of the corporate action but the FCF is in sterling and the dividend in euros. All somewhat confusing. I have only a small holding in Vodafone and it keeps producing so I am a Doris here and do not get worked up about it.

Dod

Dod101 wrote:To follow up on the table by Monabri .... but the FCF is in sterling and the dividend in euros. All somewhat confusing. I have only a small holding in Vodafone and it keeps producing so I am a Doris here and do not get worked up about it.

Dod

Thanks for pointing out the corporate action - a valid point.

My "message" was why get worked up about it ("Vodafone concerns") when one has been living with it for quite a while (the uncovered dividend) and it seems that VOD is potentially turning a corner? When you look at the relative sizes of iliad (small initial "i" because that's trendy..) to VOD are they a threat any more than the plethora of other providers of mobile services ? (the same might be said for SSE regarding div cover but are they turning a corner??)

Off topic - I actually fear for BT when 5G is rolled out. With 5G they will need to bundle large amounts of data in any contract - At that point, why will I need a landline - so 20th Century ?


p.s. in fairness, I did point out the Euro:Sterling by specifying an exchange rate and the table does say "Eur" and GBP.

Monabri

Yes maybe I was just nitpicking. We can get the general thrust of your point, thank you.


I agree with your sentiments though and am fairly relaxed about Vodafone.

I am a bit of a technophobe so I will take you at your word re 5G. I don't like BT anyway and no longer hold it with all its current questions, never mind 5G!

Dod

Does anyone here, apart from me, still have Verizon stock?

I would very much like to get rid of them, as the USD dividend cheques are hardly worth banking after the bank takes its charges.

I still hold VOD shares.

I sold VOD before the demerger, and bought them back afterwards. That way I avoided Verizon.

However my IRR since then has been -5.0%.

TJH

tjh290633 wrote:I sold VOD before the demerger, and bought them back afterwards. That way I avoided Verizon.

However my IRR since then has been -5.0%.

But capital does no matter on this Board

Dod

Dod101 wrote:

tjh290633 wrote:I sold VOD before the demerger, and bought them back afterwards. That way I avoided Verizon.

However my IRR since then has been -5.0%.

But capital does no matter on this Board

Dod

You jester

tjh290633 wrote:I sold VOD before the demerger, and bought them back afterwards. That way I avoided Verizon.

However my IRR since then has been -5.0%.

TJH

I took the all cash option (which I think meant Vodafone sold the Verizon shares for me) I then reinvested most of the money from the sale of the Verizon shares back into Vodafone which I did almost immediately on receipt of the cash which was not a good move as the shares cost ~£2.50 each so I have taken a hefty loss on those shares and my recollection is I could have picked them up much cheaper (around £2 a share only) a few weeks after the deal went through. Overall they have done OK, but hindsight says I would have been better waiting to reinvest the Verizon money back in to Vodafone.

Going back to the gist of OLTB's opening post, I have held Vodafone for many years, and have a 'full' holding of their shares in my HYP. I have concerns regarding the dividend cover I must admit, but they seem to be paying the dividend as they should thus far, so I'm happy enough to continue holding.

Ian.

monabri wrote:At that point, why will I need a landline - so 20th Century ?

I use the landline to ring the mobile when I've lost it......

Mel

melonfool wrote:

monabri wrote:At that point, why will I need a landline - so 20th Century ?

I use the landline to ring the mobile when I've lost it......

Mel

What’s a landline?

Ian

melonfool wrote:

monabri wrote:At that point, why will I need a landline - so 20th Century ?

I use the landline to ring the mobile when I've lost it......

Mel

I, on the other hand, only use the mobile to find my landline receivers when they have become buried by papers or left in the garden, or otherwise when waiting for Santander to ring me on it with the code I need to make a payment from my account.

My Verizon shares were sold when Selftrade mistakenly told me they would no longer be registered on the London exchange so I wouldn't be able to keep them.