In the wake of Vodafone selling its Verizon Wireless stake back to parent company Verizon Communications, fund managers face numerous strategic routes to invest the cash. But the general consensus is that Vodafone stock is looking favourable and re-investing could be the profitable way to go.
This is partly due to an expected dip in share price of the company after the dividend payout.
“Vodafone is attractive post-deal, and even more compelling to buy more into it now,” said Chris Kitchenham, executive director at Walker Crips.
Kames Capital is also eyeing Vodafone stock favourably.
“The Kames UK Equity fund may look to put some of the cash back into the remaining Vodafone rump,” according to Douglas Scott, co-manager of the Kames UK Equity Income fund.
Vodafone outlook
How fund managers will invest the cash depends on what kind of fund they manage, according to Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management.
“It depends on why the fund manager holds Vodafone stocks in what portfolios. For an income fund, the fund manager may try replace the stocks but it may not be in the telecoms sector. On the other hand, there is a huge amount of different ideas of how to invest cash in more growth-orientated funds,” he said.
For Chillingworth, a key attraction of Vodafone stock is its market share in India, whereas its large presence in the European market is “not doing as well”.
By contrast, the attraction for Kitchenham at Walker Crips is precisely Vodafone’s exposure to Europe.
“Vodafone’s stock will become more eurocentric now that US exposure through Verizon has been cut out. A recovery of European markets, particularly in Spain, will assist Vodafone,” he said.
Aftermath
After the Verizon transaction is completed on 21 February, Vodafone shareholders are set to receive the equivalent of around 76 pence per share in Verizon shares on 24 February, and the equivalent of 30 pence per Vodafone share in cash on 4 March.
The results of what Vodafone chairman Gerard Kleisterlee classed as the “largest single return of value to shareholders in history” will certainly have an effect on the market but the impact is largely unpredictable. The UK market percentage of Vodafone stock is huge but it is widely distributed between shareholders.
“Cash will be drifting into other stocks, such as HSBC and GSK, so there could be a gradual increase of equity income stock. Large cap companies could see some benefit from the cash,” Adrian Lowcock, senior investment manager at Hargreaves Lansdown commented.
