Ive been wary ofVodafone Group (LSE: VOD) for some time,seeing the share price as too high based on takeover hopes. Ever since the company sold off its stake in Verizon Wireless, its looked like some sort of partnership could be a profitable way forward.
What I didnt see was any clearlong-term strategy, and rather than a joined-up global giant, it seemed to me that I was looking at a rag-tag bundle of individual country telecoms firms with little in common.
Neil Woodford, it appears, had been having similar thoughts, having said that over the last few years, we have had concerns about Vodafones strategic focus. But that was after he hadjust bought some shares in May for hisIncome Focus fund, andhe went on to say that a meeting with Vodafones finance director convinced him theres now a much clearer strategy for the business.
Time to buy?
The share price has been stagnating for a while, and at 229p its lost 8% since early 2014. Forecasts for the year to March 2019 should drop the P/E to around 25 still high, but Im increasingly thinking there are good long-term prospects here.
Though the short term is not too important right now, Vodafones Q1 update revealed 2.2% organic service growth, with sustained data growth of 63%, and strong performances across Europe though overall revenue did drop by 3.3%.
Mooted dividend yields of 5.7% are nowhere near covered by earnings. That seems a bit mad to me and Ive no idea of the reason for it, but Im less concerned now thatMr Woodford wants it in hisincome portfolio.
Mergers in the future? Increasingly closer tieswith Liberty Global are looking like a good prospect.
In from the cold
Im starting to warm to Talktalk Telecom Group (LSE: TALK) too. We were allshockedby the security breach in 2015, with details of around 150,000 customers accessed by hackers and the market sentTalktalks shares plunging.
But investing memories can be short, and since December 2016 weve seen a 19% rise to 183p.
Earnings have been growing impressively since 2014, and based on forecasts for the next two years wed be looking at a P/E of a very modest 14 by March 2019. On top of that, Talktalks predicted dividend yields are close to Vodafones at around 5.5%, with the important difference that theyd be about 1.3 times covered by earnings.
Good start
A trading update on Wednesday told us of continuing strong demand for the companys Fixed Low Price Plans (FLPP), with the total number ofFLPP customers reaching 1.3m. That suggeststheres big demand for simpler lower-price connectivity and were not all after as much data as you can eat. My ownbroadband was recently upgraded from 100Mbps to 150Mbps, which makes no difference whatsoever for my kind of usage.
The reported continued strong growth inbusiness-to-business service offered a sign that the hacking fallout is hopefully over, as Id expect business customers to be more wary of security risks.
The company has reiterated its full-year guidance for EBITDA of between 270m and 300m. We should have a flat earnings year this timewith growth coming next year, soIm not getting too excited by that yet but it is quietly encouraging.
All in all, I see confidence returningwith the share price apparently lagging behind. Talktalk shares look nicely priced to me.
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