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Vodafone - CEO sensibly exits stage left

By Chris Bailey | Tuesday 15 May 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

A little over three months ago, I noted about telecoms behemoth Vodafone (VOD):

'I am not surprised that the share has pulled back 10% from recent highs (2 years worth of dividends!) in recent weeks. Unless you are an aggressive yield muncher, then wake me up at 200p...'

Well blow me down here we 200p a share. So what do I think now? Well the story of Vodafone has taken a couple of twists in recent weeks. The first was last week's announcement that it was buying the telecoms assets of overleveraged media giant Liberty Global in Germany, the Czech Republic, Hungary and Romania for a cool €18.4 billion. Germany is the 'prize' here as Europe's largest country is surprisingly backward in terms of the use of mobile broadband, 4G and related, so you can see what Vodafone is hoping to do there. So fair enough, but what grabbed my attention was that the price paid equated to just under x11 times ebitda (obviously a comedy earnings number to start with) which is pretty firm to - wait for it - x8 ebitda after five years worth of synergies. Suffice to say five years is a lifetime in even the telecoms market. Thumbs down from me for Vodafone's temerity in quoting such a comedy target.

I am guessing that the CFO was integral in these discussions, working out the price Vodafone would pay and - more than likely - that comedy synergy comment/rationale above. And for his next trick? Get made CEO! As today's full year update noted:

'The Vodafone Group Plc Board today announced the succession plan for the role of Group Chief Executive. Effective 1 October 2018, Vittorio Colao will be succeeded by Group Chief Financial Officer Nick Read'

Hmm. Well I think Colao knows a good time to be exiting into the night, aided by some downright easy comparisons and - I admit - cost cutting tailwinds, he can claim 'a year of significant operational and strategic achievement and strong financial performance'. More insightful to the reality is that he has pushed the full year dividend up by a massive 2%. Great signal there boys! Well I guess you have to fund the big German push. And you could drive a coach and horses through the guidance - naturally for 'underlying organic ebitda growth' of 1-5%.

Still dividend munchers have their prize of a 6%+ payment at the prevailing share price. I note Vodafone did not quite cover the dividend paid to investors in the year just ended but promises more free cash flow next year...although naturally there is a caveat with the threat of mobile spectrum payments.

My view here? Nothing to really excite me as a total return investor but – I admit it - dividend munchers are likely to be served well by the CFO pushing up to the big job in the sense their payout/yield is highly likely to be made for the next few years. As per a rising share price though, I have just one observation: 'Five year synergies' focus? Don't make me laugh.

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