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The flagship FTSE 100 index of main shares has some corporations in it that appear to be actual bargains to me.
Right here I wish to talk about 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 discount!
So why do I feel the share worth in query seems less expensive than I feel it might be just a few years down the road?
Fallen big
The share in query is Vodafone (LSE: VOD). It’s arduous to recollect now simply how massive and impressive 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, regardless that the corporate remains to be carrying extra debt than I like.
However a diminished enterprise footprint may nicely imply revenues and earnings shrink in coming years.
Why I just like the share
As I see it, there are not less than two very alternative ways to take a look at this example.
One could be to see Vodafone as a formerly-high-flying enterprise now in long-term managed decline. The dividend lower introduced for subsequent 12 months just isn’t the primary.
The share worth chart additionally seems 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 worth reflecting previous investor fears, whereas its present enterprise technique is definitely positioning it for a brighter future.
Promoting items and seeing revenues fall just isn’t essentially a foul factor in my guide. If it carries out its strategic shift efficiently, Vodafone must be extra centered, 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 development alternatives, similar 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 nicely above at present’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 is likely to be a in just a few 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.
