Titillated and Taunted by Telecoms

Morningstar columnist Rodney Hobson gives his opinion on Vodafone and BT, and discusses the possibility that you are overthinking your investments

Rodney Hobson 2 November, 2012 | 12:08AM
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Vodeo Dough

Shares in mobile phone giant Vodafone (VOD) refuse to move much higher than 170p despite a share buyback programme (now almost complete) and consistent rewards for shareholders. I do wonder if the adverse publicity generated by the company's avoidance of tax in this country has tainted investors' views.

I was recently asked whether I still regarded Vodafone as a good investment. My policy in the past has been to top up my holdings whenever the shares sank below 170p and that opportunity has recurred.

Unfortunately I have topped up so often that I am seriously overweight in Vodafone. Therefore, I am holding off on buying more for that reason and that reason only.

Vodafone is not without its difficulties, given its exposure to southern Europe where revenue and profits are collapsing. Even Germany is struggling and that situation is likely to get worse.

The group does, though, have a wide geographic reach and Turkey and India in particular are powering ahead. I believe that the purchase of Cable & Wireless Worldwide was at a decent price and will enhance earnings, not to mention cash generation.

I therefore still see the shares as a buy below 170p, and possibly up to 175p.

To view Morningstar’s analyst research on Vodafone, Premium subscribers can click here. Not a Premium member? Not a problem! Get instant access to Morningstar research and other tools with a free 14-day trial.

BT Answers the Call

Rival BT Group (BT.A) saw its shares jump by nearly 7% on Thursday after interim results beat expectations. It is true that revenue is down sharply and corporate customers across Europe are naturally cutting back on spending. The global communications division, which at one time seemed to be emerging from the mire, now goes from bad to worse again.

However, pre-tax profits for the half year rose 8% thanks to continued cost cutting in the retail department. BT is expanding its new sports television channel and, despite facing stiff competition from well entrenched market leader BSkyB, it is making headway.

There was a time when BT seemed determined to alienate its customers. It now gives the impression that it knows what it is doing and where it is going. Revenue is expected to improve in the second half.

Furthermore, BT promised to increase its dividend by 10-15% a year and the 15% rise in the interim is at the top of that scale, putting the prospective yield above 5%. In my opinion, any weakness in the share price is an opportunity to buy.

To view Morningstar’s analyst research on BT, Premium subscribers can click here.

Learn to Live a Little

It was good to get so much feedback from readers who spoke to me at the London Investor Show last week. One of the important lessons I learnt was that while most of us know too little, it can be detrimental to try to know too much.

One regular show attendee, from whom I have heard several times in the past, tells me that he always does his own research (good man!) but he admits that he is obsessed with doing things himself (not so good, you can't do everything) and that few people go into the depth of detail that he does (a mixed blessing).

He says that he will spend years researching a subject until he is comfortable enough to move forward but has come to a crossroads in investing because research is very time consuming and he has a full time job, an old property needing constant maintenance and a demanding five-year-old daughter.

His answer is to seek someone who will help with the research and is now agonising over which research house will fulfil his needs, how much it will cost, how much he needs to invest to make it worthwhile to pay for research ... the list goes on and on. By the time he has researched the researchers a few more years of missed investment opportunities will have gone by.

Yes, it is definitely right to do your homework and to check the basics of how well a company has performed in recent years, what its prospects are and what news has emanated from the board in recent months. But if you go into endless detail you will find that by the time you have decided to invest the share price has moved, the yield and price earnings ratio have changed and more news has come out, so it is back to another round of research.

Unless you want to do this as a full-time job, my advice is to keep investing within reason, to look for solid reliable companies paying a dividend and avoid churning your portfolio. That's what I do and I am making total returns of at least 5% each year, not spectacular but I am beating inflation comfortably.

My performance would have been better still but I sometimes ignore my own advice and live to regret it.

For those investors who are too busy to spend years conducting their own research on individuals stocks and funds, you can gain free access to Morningstar’s independent research for 14 days. Click here for your free Morningstar Premium trial.

To hear from some of the other speakers from the London Investor Show, watch these videos:
- Urquhart Stewart's Lessons from the Crisis & Outlook for 2013
- Urquhart Stewart: The 'New Normal' Is a Lower, Slower World
- Controlling Costs Is Essential for Long-Term Investors
- Why Invest in Private Companies?
- Financial Education for Children and Beyond

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Rodney Hobson is a long-term investor commenting on his own ideas and portfolio; his comments are for informational purposes only and should not be construed as investment advice.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BT Group PLC138.80 GBX-1.70Rating
Vodafone Group PLC69.70 GBX-1.16Rating

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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