Della Valle vows to improve Vodafone’s performance by slimming down headquarters and devolving power and accountability to operating subsidiaries. The shares have fallen more than half over the past five years.
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Vodafone’s free cash flow does not cover capex and shareholder returns, although disposals are bringing leverage down. Returns lurk below or around cost of capital in four key markets. Revenues have been broadly flat for at least a decade. It has stumbled in Spain and - in spectacular fashion - in Germany, its largest market, where it is losing broadband customers. Vodafone operates in a horribly competitive European market and has an accompanying tendency to use its foot for target practice. That helps explain why the market dialled down Vodafone’s shares by 7 per cent when the plan was revealed on Tuesday. But it is unlikely to deliver anything like the group’s value on a sum of the parts basis. Della Valle’s latest turnround is a pragmatic response to competitive weakness. This suggests the group’s new chief executive, Margherita della Valle, will come under pressure to put them on the block. In Vodafone’s case, they reckon that the value of the constituent parts exceeds the telecom’s group market capitalisation by some margin. What analysts do understand well is how much a company’s assets might be worth. The best of the analysts can use this understanding to pick out stocks that will outperform, relative to the rest, according to a study by Hemang Desai and others for the Financial Analyst Journal.īut the lesson for investors is that, as a broader gauge of where markets are heading, published estimates should be taken with a shovelful of salt.
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Listed groups want to be well understood by the market, and guide the analyst community on how to model future trends. Nevertheless, analysts do provide a useful service, especially when looking at individual companies. Both the S&P 500 and the Euro Stoxx 600 index are trading roughly where they were in February, before the brief banking sector-related wobble. Yet all of these positive surprises failed to give the markets much impetus. A Barclays analysis of conference-call transcripts noted that 70 per cent of companies see profit margins holding or even expanding. Companies also sounded sanguine about the future. Not so.įirst-quarter earnings beat analysts’ forecasts by 14 per cent on average, according to Deutsche Bank.
A quick glance at reported numbers and you would be justified in thinking that companies performed much better than the market expected - and that share prices might pop. More to the point, the aggregate of such estimates may not be an accurate predictor of how the market as a whole is likely to do.įor a neat example of why relying on published estimates is not always a good strategy, look no further than the first quarter of 2023. Streetwise private investors know there is an art to reading them. It can be a bad idea to take these projections at face value.
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