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QEV: how Vodafone’s capital return will shape markets
by Robert St George on Feb 12, 2014 at 11:40
Others are more circumspect in their expectations. Paul Kavanagh, a partner at Killik, observes that Vodafone is well owned by global investors. ‘It would be wrong to suggest that all of it comes back into the UK.
I suspect the cash will be spread across international markets. While the headline sums look attractive, once you strip it all out I don’t think you will see a noticeable effect.’ Kitchenham predicts that the impact will be felt slowly, as the proceeds are reallocated gradually rather than instantly. ‘Some will feel the cash is burning a hole in their pocket and some will be more relaxed.’
As for Vodafone itself, few are excited by the prospects for what remains of the business. Citywire AAA-rated Richard Colwell, manager of the £2.5 billion Threadneedle UK Equity Income fund, is not tempted by the firm.
‘In terms of the core business and the fact they have indicated they need to invest more capital expenditure and they appear to be quite keen to buy fixed-lined assets in Europe, I think that vindicates some of the operational concerns that I had over Vodafone – that their core cash flows were not as stable as a lot of people thought.’
Whether Vodafone opts for a series of bolt-on acquisitions or a transformative deal such as a merger with BSkyB, Kavanagh acknowledges that ‘you have some deal risk here’. Godber concurs that ‘there is going to be an enormous amount of corporate activity in this market’.
Optimists can instead highlight Vodafone’s exposure to Europe, says Kavanagh, and particularly the south of the continent. ‘Savvy investors will appreciate that European markets are recovering,’ Kitchenham commented. Clark is doubtful, due to the pressure on telecom margins in Europe. ‘It’s not evident that a general recovery there will benefit Vodafone.’
Kitchenham is nonetheless reassured by the fact that ‘we’ve had a fair indication Vodafone is going to be a progressive dividend payer’.
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