Capital.com Research TeamTelecom and technology service provider Vodafone ended 2019 as it began, with its stock trading below $20 per share. Investors who stuck with the stock throughout the year will have been disappointed by this poor performance, especially when compared with Vodafone’s closest competitors and the wider telecom industry.
By contrast shares of AT&T gained more than 30 per cent in 2019 while the SPDR S&P Telecom ETF gained nearly 12 per cent.
So, what happened at the UK telecom company? A rough start to the year carried over into the summer months. While a slight rebound in the autumn rewarded loyal investors, ultimately the stock ended the year at a slight loss.
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Here is a look back at some notable Vodafone share news over the year.
Restructuring effort followed by 5G collaboration
Vodafone announced in late January that it would be closing smaller offices as part of ongoing initiatives to cut costs and “unite teams”. The announcement received some unfavourable press by multiple publications, particularly in The Scottish Sun.
Vodafone said it would close its customer service centre in Scotland and its workers were essentially told to either relocate down south or find a new job elsewhere.
Just one day later, Vodafone announced it would work with Telefonica UK Ltd to extend their existing network sharing partnership term, including 5G at joint radio network sites. A similar announcement with Telecom Italia for network sharing on future 5G networks was announced one month later.
The Street starts to warm up
Wall Street research firms took a closer look at Vodafone in an attempt to decide if investors should take advantage of recent weakness or stay clear. On February 6, Bank of America analysts upgraded Vodafone’s stock rating from Neutral to Buy. The analysts noted there is now “light at the end of the tunnel” for the company which struggled from heavy competition, high spectrum costs and funding issues in its Indian subsidiary.
Vodafone was on the receiving end of an even more encouraging upgrade in late March by analysts at Macquarie. The research firm double-upgraded Vodafone’s stock rating from Underperform to Outperform.
The bearish to bullish move was based on recent “seismic changes” in its business, including the 5G partnership with Telecom Italia. The research firm also argued that although Vodafone was likely to slash its dividend, such short-term pain would help progress in the long term.
Such news helped sustain Vodafone’s stock above $18 per share for a brief period of time but all momentum was quickly lost in May.
Investors not pleased with dividend slash
As many investors expected, Vodafone announced on May 14 a 40 per cent reduction to its full-year dividend to nine eurocents a share. This marked the first time in Vodafone’s history that it slashed its pay-out to investors. The company double-downed with cautious comments.
Whereas Vodafone CEO Nick Read had told reporters in 2018 that the company had a “good degree” of financial headroom, by November 2019 this had fallen to “sufficient”. Soon afterwards the telecoms chief described Vodafone’s financial headroom as “compressed”.
Vodafone also needed to preserve its capital to build out its 5G networks. According to Reuters, the company had to deal with “hefty payments” for the airwaves required to launch a 5G service. At the same time the company also needed extra cash to bolster its fixed-line broadband business, to compete better in markets like Spain and Italy, and to finalise its acquisition of certain Liberty Global assets.
The stock went on to hit a 2019 low of $15.53 in late May.
Step forward with asset sale
Vodafone reversed weeks of pressure-selling in late July when investors cheered a decision to spin off its mobile towers business. The company’s stock gained nearly 10 per cent in one day alone when management confirmed it would sell off 61,700 mobile masts (towers) across 10 countries for as much as €20 euros.
Vodafone said it would spin its towers business into a new company called Towerco which would be worth at least €15 billion. Vodafone CEO Read said the new entity would be “Europe’s largest tower company” and offers investors “substantial opportunity” to unlock trapped value, according to The Guardian.
Proceeds from the deal would help lower its growing debt load, in part due to the €18.4 billion Liberty Global deal. The deal would also eliminate €200 million of annual spending required to maintain the towers.
All it took for Vodafone’s stock to regain momentum was one compelling announcement. Investors rediscovered their confidence. The company rebounded from its prior woes and was ready to move forward.
Shares of Vodafone gained more than 25 per cent in value over the following two months but tried and failed on several occasions to sustain any momentum above $20 per share.
November highs
Investors were treated to more good news when the company announced in early November a positive revision to its 2020 outlook. Management said it now expected full year 2020 Adjusted EBITDA to be between €14.8 billion and €15 billion – up from a prior range of €13.8-14.2 billion.
Vodafone’s stock hit a 2019 high of $21.72 after revising its guidance but lost momentum amid political concerns. Ahead of the UK election, Labour leader Jeremy Corbyn said that his government would nationalise British Telecom’s Openreach. To have done so would eliminate Vodafone’s broadband revenue.
Shares of Vodafone drifted lower through mid-December and saw only a slight rebound when Labour were defeated in the general election.
Conclusion
Vodafone is happy to end its bumpy 2019 with several signs of momentum for 2020 and beyond. The acquisition of Liberty Global’s assets was finalised in late July and transformed the company to become the “owner of the largest gigabit-capable next generation network infrastructure in the region”.
But with a slashed dividend, a year of zero stock gains and recent struggles still fresh in investors’ minds, it is unclear if favourable Vodafone stock news would be enough to improve investor sentiment in 2020 and beyond.
