The £2.8bn global growth investment trust now has around 1.3% of its equity portfolio invested in the stock, which today saw its price buck the declining trend of the FTSE following speculation about a takeover by AT&T.
Updating investors, Alliance Trust said that Vodafone had entered its portfolio along with media corporation 21st Century Fox, Baltic lender Swedbank and Accenture, the management consultancy firm.
The new positions were funded by profit taking and sales of stocks including Apple, Adecco, Microsoft and Bank of Nova Scotia, though the changes have left Alliance Trust’s regional exposure broadly unchanged with 23% of the equity portfolio exposed to the UK and 46% to the US.
An Alliance Trust spokesperson said that the team had bought into Vodafone, which has had an eventful year including the loss of high profile investor Neil Woodford who sold out of the stock completely in February and a deal to sell its 45% stake in US mobile firm Verizon, because of a shift in EU legislation that will “put inflation back into the telecom sector” which has been deflationary for a decade.
Alliance Trust believes the change has gone unrecognised by the market, with most European telcom stocks priced for declining margins and revenues.
Moreover, Vodafone also has plenty of cash to spend after its £84bn Verizon Wireless deal. Alliance said it was agreed at a peak in terms of margins and multiples, giving the communications giant the power to improve its networks across the Continent through capex and by snapping up fixed line assets.
Ultimately, though, the trust largely bought into Vodafone because of its 5.2% yield, which it describes as “healthy”. “We bought Vodafone for its yield and we believe there is little downside to valuation and potential upside if AT&T bids for the company,” it explained.
Shares climbing
Despite a pullback in the FTSE 100, more fevered talk about AT&T’s bid for Vodafone helped the stock move higher during this morning’s session.
According to Bloomberg, sources close to the firm have said a deal is on the cards for next year, and shares in Vodafone gained 2.8%, rising to 230.7p, after the report.
Analysts have expressed caution on the stock, though, and have warned it is difficult to compare Vodafone’s valuation to its peers because it is the only member of the mobile communications sector that is a constituent of the FTSE 100, and because earnings growth over five years has been in decline while the likes of BT and Talk Talk have moved in the opposite direction.
Meanwhile, at Alliance Trust, over the three months to the end of September the investment trust’s total shareholder return was 0.2%, and 15.4% year to date. Its net asset value (NAV) total return, however, was down 0.1%, inclusive of income and with debt at fair value. Its NAV total return is up 12% year to date.
