Vodafone shares: 4 reasons why I’m not buying

first_img As 2020 draws to a close, I am looking at potential UK companies to add to my portfolio. Vodafone (LSE: VOD) shares are on my radar but I am not convinced about investing in the stock. Here’s four reasons why I am not buying yet.#1 – Mountain of debtAt time of writing, Vodafone has a market cap of £34bn. Recent results highlighted that its net debt amounts to €44bn (approximately £40bn), which exceeds the market value of the company.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…As an investor, this does not make sense to me. I don’t like the idea of buying Vodafone shares when I know that huge mountain of debt will take so much time to pay down. The management team has implemented a cost cutting programme and is improving its customer focus to tackle the leverage on the balance sheet.#2 – Vantage TowersVodafone is spinning off its Vantage Towers business through an initial public offering (IPO) in early 2021. The proceeds from this stock listing will be used to help pay down the debt position and possibly pay a bumper dividend to investors.I am not getting sucked in Vodafone’s prospects of paying a special dividend. Vantage Towers is Vodafone’s European tower infrastructure business. It is a network of ground-based and roof-top towers across key locations. I believe the sale will mean that the company is losing an attractive asset, as Vantage Towers’s revenue is inflation-linked.The requirement for data as well as the roll-out for 5G technology means that the growth potential for Vantage Towers is huge. While the FTSE 100 company will continue to be Vantage Tower’s tenant, the remaining business will be much smaller and debt laden. The remaining prospects for Vodafone shares do not sound appealing to me.#3 – Liberty GlobalIn July 2019 the mobile operator completed its acquisition of Liberty Global’s assets in Germany and Central Eastern Europe. While the deal added to Vodafone’s debt burden, it was part of its convergence strategy, whereby it can sell multiple services to customers.Germany is Vodafone’s largest market be revenue. By cross-selling mobile, broadband, and television services in this region, the customer retention will improve. But this does not prevent Vodafone’s competitors copying the strategy if it proves to be a winner.While the convergence strategy makes sense to me, the benefits are likely to take time to manifest and is unlikely to reduce the debt in the short term.#4 – Dividend payerVodafone has a history of paying large dividends that are not covered by earnings. In May 2019, it reduce its dividend by 40% in order to preserve cash and pay down debt.The Vantage Towers IPO could result in a special dividend. But I think future dividend cuts could be in the pipeline especially when earnings do not cover the payment.My viewDespite Vodafone investing billions in the mobile spectrum, there is not much differentiating the company from its competitors. Customers typically just go with the cheapest deal, which could impact the telecom provider’s revenue and thus the security of its dividend.In summary, the strategy and changes make sense to me but I am sceptical Vodafone shares can thrive from here. “This Stock Could Be Like Buying Amazon in 1997” Vodafone shares: 4 reasons why I’m not buying Nadia Yaqub | Wednesday, 23rd December, 2020 | More on: VOD Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Our 6 ‘Best Buys Now’ Shares Nadia Yaqub has no position in the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.center_img I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Image source: Getty Images. Simply click below to discover how you can take advantage of this. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Enter Your Email Address See all posts by Nadia Yaqublast_img read more

Read More »