Vodafone's shares bounce on Liberty stake and talks of $14bn unit sale

Vodafone’s share price rose over 3% last Tuesday to a three-month high, after Liberty Global purchased a 4.9% stake in the UK blue chip mobile group, on hopes the telecoms giant can help to instigate a revival. It was also reported on 16 February that Vodafone could be open to a sale of its $14bn African unit, Vodacom. 

Vodafone’s [VOD.L] share price rose 3.43% on Tuesday 14 February, closing at a three-month high, after Liberty Global [LBTYA] confirmed it had purchased a 4.9% stake, worth £1.2bn. The hope is that the telecoms giant can help instigate a revival of the beleaguered UK mobile company.

In an eventful week for the FTSE 100 stock, it was also reported on Thursday that Vodafone is exploring options for its $14bn African unit, Vodacom. This flurry of activity follows the resignation of former CEO Nick Read at the end of last year, with CFO Margherita Della Valle having taken over on an interim basis.

Liberty deal sends Vodafone share price higher

Vodafone shares have made a promising start to 2023, climbing 21.53% year-to-date, after closing at 102.38p last week. However, the price is still down 18.12% over the previous 12 months.

The VOD share price has lost over half of its value over the last five years, as competition in Europe has limited the company’s potential growth, despite significant investment. However, the stock has risen from its lowest level since 1997 following Read’s departure, and Vodafone shares are now 23% above December’s 52-week low of 83.24p.

Can Liberty stake reignite UK telecoms giant?

Vodafone, which operates in 21 countries in Europe and Africa, has long been under pressure – not least from various activist investors – to shed poorly performing units and simplify its business. Liberty Global CEO Mike Fries highlighted Vodafone’s structural difficulties, related to fragmented markets and resistance to consolidation by regulators.

However, with Vodafone and CK Hutchison, the owner of Three UK, confirming talks over a prospective merger of their UK businesses in October, Fries reckons that “regulators have realised that investments should come with reasonable opportunities to make a return. They’ve started to support the industry more than in the past,” he said.

Confirming he’s supportive of the merger of the UK’s third- and fourth-biggest mobile operators – which would make the combined entity the country’s largest operator – Fries calls the current four mobile companies an “anomaly”, according to the Financial Times.

It’s not just Liberty Global sizing up opportunities: a number of foreign-based investors have acquired a stake in Vodafone. These include Atlas Investissement, run by the French billionaire Xavier Niel, which bought a 2.5% stake in September. Niel’s priorities for the business include streamlining operations, cutting debt and boosting cash generation. Liberty's investment is “likely to increase the push for a break-up”, reported Reuters.

Ultimately, Fries senses a huge opportunity, saying Vodafone’s share price fails to reflect the underlying value of the business and opportunities for consolidation. He told the FT that the cheap stock is “an opportunistic and financial investment”. Investors will be hoping that Fries’ vision signals an upturn in Vodafone’s fortunes.

Vodafone explores options for South Africa unit

Vodafone shares received a further boost last week on a report that it’s exploring options for its African business, Vodacom. Bloomberg reported on Thursday that Vodafone is looking at ways it can extract more value from its 65% holding in the south-western African mobile communications company, as it seeks to improve performance and reduce high debt levels.

Possible outcomes could entail merging the business with other operators, divesting some of its assets, or selling part of its stake. Vodacom shares closed up 4.2% on Thursday in Johannesburg, giving the company a market capitalisation of $14.9bn.

Can the VOD share price dial higher?

The 20 analysts offering 12-month price targets for Vodafone in the Financial Times yield a median target of 115.50p, with a high estimate of 195.46p and a low estimate of 71.08p. The median estimate represents an upside potential of 12.82% versus last week’s closing 102.38p.

Analysts’ recommendations on the VOD share price have, however, become less bullish in the last 12 months, in light of the group’s problems. Four of the analysts currently rate the stock a ‘buy’, down from nine a year ago, while five have an ‘outperform’ recommendation, down from 14 a year ago. Eight analysts now have a ‘hold’, four an ‘underperform’, and two a ‘sell’ recommendation, compared with one, one, and none, respectively, a year earlier.

Overall, the data points to a consensus ‘hold’ at present, which would seem logical with so much uncertainty in the near term. One thing looks clear, though, and that is Vodafone’s longer-term potential.