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The flagship FTSE 100 index of main shares has some corporations in it that appear like actual bargains to me.
Right here I wish to focus on one which sells for pennies, has introduced plans to slash its dividend, has sizeable debt and is shrinking its enterprise.
That won’t sound like everybody’s thought of a cut price!
So why do I feel the share value in query appears less expensive than I feel it could possibly be a number of years down the road?
Fallen big
The share in query is Vodafone (LSE: VOD). It’s laborious to recollect now simply how massive and bold the corporate was 1 / 4 of a century in the past.
Not solely has the FTSE 100 agency’s market capitalisation shrivelled since then (although at round £18bn, it’s nonetheless substantial), however the firm has been getting smaller too. Over the previous few years, it has been promoting off a few of its operations in varied European markets.
That has generated money permitting Vodafone to cut back its debt. I see that as a optimistic transfer, although the corporate continues to be carrying extra debt than I like.
However a lowered enterprise footprint may effectively imply revenues and income shrink in coming years.
Why I just like the share
As I see it, there are a minimum of two very alternative ways to take a look at this case.
One could be to see Vodafone as a formerly-high-flying enterprise now in long-term managed decline. The dividend reduce introduced for subsequent yr will not be the primary.
The share value chart additionally appears woeful, with the FTSE 100 agency having seen its shares greater than halve over the previous 5 years.
However one other method could be to view Vodafone as being lumbered with a share value reflecting outdated investor fears, whereas its present enterprise technique is definitely positioning it for a brighter future.
Promoting models and seeing revenues fall will not be essentially a nasty factor in my guide. If it carries out its strategic shift efficiently, Vodafone must be extra targeted, with a more healthy stability sheet than earlier than.
Buyer demand stays excessive, the corporate has a large buyer base and it can also seize some attention-grabbing progress alternatives, akin to quickly increasing cellular cash use in Africa.
Sure, the dividend is ready to halve. However the present yield is 11.4%. Even at half that stage, the yield could be effectively above in the present day’s FTSE 100 common.
I’m holding
That explains why I’ve no plans to promote my Vodafone shares.
I feel they’re much cheaper than they must be and, hopefully, than the place they may be a in a number of years’ time.
With a giant market, massive model and nonetheless a giant dividend yield even after it’s halved, I see the cup as half full.
