This FTSE 100 share looks too cheap to ignore!
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The flagship FTSE 100 index of main shares has some firms in it that seem like actual bargains to me.
Right here I wish to talk about one which sells for pennies, has introduced plans to slash its dividend, has sizeable debt and is shrinking its enterprise.
That won’t sound like everybody’s thought of a discount!
So why do I feel the share worth in query seems to be less expensive than I feel it could possibly be a couple of years down the road?
Fallen big
The share in query is Vodafone (LSE: VOD). It’s exhausting to recollect now simply how giant and bold the corporate was 1 / 4 of a century in the past.
Not solely has the FTSE 100 agency’s market capitalisation shrivelled since then (although at round £18bn, it’s nonetheless substantial), however the firm has been getting smaller too. Over the previous few years, it has been promoting off a few of its operations in numerous European markets.
That has generated money permitting Vodafone to scale back its debt. I see that as a constructive transfer, regardless that the corporate continues to be carrying extra debt than I like.
However a lowered enterprise footprint might properly imply revenues and earnings shrink in coming years.
Why I just like the share
As I see it, there are a minimum of two very alternative ways to have a look at this example.
One can be to see Vodafone as a formerly-high-flying enterprise now in long-term managed decline. The dividend lower introduced for subsequent 12 months shouldn’t be the primary.
The share worth chart additionally seems to be woeful, with the FTSE 100 agency having seen its shares greater than halve over the previous 5 years.
However one other strategy can be to view Vodafone as being lumbered with a share worth reflecting outdated investor fears, whereas its present enterprise technique is definitely positioning it for a brighter future.
Promoting models and seeing revenues fall shouldn’t be essentially a nasty factor in my e-book. If it carries out its strategic shift efficiently, Vodafone must be extra centered, with a more healthy stability sheet than earlier than.
Buyer demand stays excessive, the corporate has a large buyer base and it can also seize some attention-grabbing progress alternatives, similar to quickly increasing cell cash use in Africa.
Sure, the dividend is ready to halve. However the present yield is 11.4%. Even at half that stage, the yield can be properly above in the present day’s FTSE 100 common.
I’m holding
That explains why I’ve no plans to promote my Vodafone shares.
I feel they’re much cheaper than they must be and, hopefully, than the place they is likely to be a in a couple of years’ time.
With an enormous market, large model and nonetheless an enormous dividend yield even after it’s halved, I see the cup as half full.