The European telecoms sector is again being targeted by activist investors after weekend reports that Cevian Capital has built up an undisclosed stake in Vodafone (VOD).
The mobile network operator saw its share price top the FTSE 100 leader board in early trading on Monday, the stock up around 4% to 132.5p.
The Swedish activist fund is thought to want to put pressure on the FTSE 100 company to sell parts of its global operations, consolidate its position in key markets, return cash to shareholders and bring more telecoms experience onto the board, according to a report by Bloomberg.
Vodafone has seen its shares come under a prolonged period of underperformance, with its valuation halving between the beginning of 2018 and the start of 2022. Cevian, the report suggests, could try to force the company into big corporate takeovers or asset sales.
PLANS FOR CHANGE IN PLACE
Analysts, however, remain sceptical. ‘Unlike most situations where an activist pops up on the shareholder register, Vodafone already has a plan in place to sharpen the focus of the business,’ said Russ Mould, investment director at AJ Bell.
That has so far included spinning off Vantage Towers, refocusing the portfolio through a range of disposals and mergers, and positioning the company for ever-greater consumption of data, Mould said.
Numis agrees, pointing out that Vodafone’s senior management has worked ‘consistently and at pace’ from the start of its tenure in October 2018 to extract significant value from the firm’s assets, organically and inorganically.
Yet the reshaping of Vodafone has yet to result in any meaningful re-rating of its stock market valuation, with Covid-19, understandably, delaying progress, said Numis on Monday.
With a ‘monster’ debt pile of around €44 billion, the company has limited scope to increase its share buyback programme or raise its dividends for now. This could mean that Cevian might ‘push for a further refinement of the portfolio through mergers or sales in a sector which has recently seen quite a bit of activity, including KKR bidding for Telecom Italia and Patrick Drahi and Altice snapping up a stake in BT (BT.)’, said AJ Bell’s Mould.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (James Crux) own shares in AJ Bell.
