Company in the news: Vodafone

Vodafone has made a bid for Germany's Kabel Deutschland and the country's lucrative telecoms market. Phil Oakley explains what investors should do.

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Telecoms giant Vodafone's (LSE: VOD) £6.6bn bid for German cable telecom company Kabel Deutschland makes a lot of sense. Mobile-phone businesses across Europe are in decline due to weak economies and competition. To keep customers on board it's becoming increasingly important to offer them a bundle of products.

Now Vodafone will be able to offer its German customers the so-called quadruple-play' package of mobile-phone, fixed-line phone services, broadband internet and pay TV. This business has a decent chance of growing, given that take up of broadband and TV from Kabel's customers is currently quite low.

The trouble for Vodafone and for its investors is that it may have to replicate this German deal across its most important European markets and could be forced to pay high prices to do so. It's by no means certain that shareholders will enjoy higher dividends as a result.

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Elsewhere in the business, it is possible that Vodafone may get a better price than people expect for its 45% stake in US mobile operator Verizon Wireless and that this could boost the share price in the short term. But I think it faces a tough future due to ferocious competition in its markets.

At 187p, the shares offer a decent dividend yield of 5.7%, but the dividend payment is not likely to grow much. This makes the shares worth hanging on to for the income, but nothing more.

Verdict: hang on for the income

Phil Oakley

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.

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