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Stock of the week: Vodafone

Written by: Paloma Kubiak
Helal Miah, investment research analyst at The Share Centre, picks telecoms giant Vodafone as a ‘buy’ for investors with a low to medium risk appetite.

The Vodafone Group provides a range of services, including voice and data communications and operates in Europe, UK, Asia Pacific, Africa and the Middle East through its subsidiaries, associates and investments.

Within the last week, Vodafone has launched a campaign to promote itself as “the first UK mobile operator to offer a 30-day network guarantee”. The brand is encouraging customers to “immerse themselves” in its network so they feel they have made the right decision before committing, with an option to cancel their contract within 30 days if they are not satisfied.

Helal said that in February’s trading update, the group stated revenues had fallen across most divisions in the last quarter of 2015. “However investors should appreciate this was mostly as a result of adverse currency movements.” Organic growth was more pleasing as group revenues increased by 2.6% led by further expansion in emerging markets, and surprisingly good in South Africa where economic conditions have been poor.

He added that European markets are showing more stability while demand for data grew by 68% over the three months to 31 December 2015 and the group signed up another 4.8 million subscribers and 4G coverage rose. “Most important to note is that management reiterated that they expect to meet the full year guidance.”

While the price to earnings multiple can be considered a little high, The Share Centre believes this is due to Vodafone selling its stake in US communications firm Verizon in 2013, so it needs to put the proceeds to use and make acquisitions. “We have already seen a fair bit of M&A activity in the sector over the last year as rivals consolidate and offer quad-play services (telephone, TV, broadband and mobile) and we do believe Vodafone will need to do the same to help drive earnings forward.”

Helal said that at present, the good dividend yield should make this an attractive stock for income seekers and it therefore recommend Vodafone as a ‘buy’ for investors willing to accept a low to medium level of risk.

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