Vodafone shares fall after UAE telecoms giant takes 10% stake

Middle Eastern telecoms group Etisalat has taken an almost 10% stake in Vodafone, causing the company’s shares to drop.

Etisalat (E&), the UAE state-controlled telecoms group, bought a 9.8% stake worth £3.3 billion, making it the British company’s biggest stakeholder.

Yearly revenue rose 4% to €45.6bn (£38.6bn) reflecting growth in Europe and Africa. Total Service revenue rose 2.6% to €38.2bn (£32.3bn). Underlying cash profits rose 5% to €15.2bn (£12.8bn), meaning overall performance was in line with what was predicted.

Vodafone has claimed that because it supplies government departments including the Ministry of Justice, this means a new majority stakeholder would have to be vetted.

A government spokesperson commented on the takeover, saying: “The government has robust processes to ensure its IT systems are secure and protected from threats. Where national security issues do arise concerning an acquisition, the government has powers under the National Security and Investment Act to intervene where necessary.”

Following the announcement, the company’s shares fell 3.0%.

Vodafone’s CEO commented on the event, saying the group expects to deliver a “resilient” performance in the new financial year, including underlying cash profits of €15 – €15.5bn (£12.7 – £13.1bn), but highlighted Vodafone isn’t immune to the wider macroeconomic challenges.

Industry reaction

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown, said: “Vodafone’s shares were down 3% after the market opened this morning, as investors sounded a tepid response to full-year results. While the underlying operational performance was sturdy enough, the market was clearly expecting more.

“Subdued sentiment may well be coming from the warning that Vodafone isn’t immune to the wider macroeconomic challenges we’re seeing. Either way, the group has recently acquired a new largest shareholder, in the form of Emirates Telecommunications, which now owns 9.8% of Vodafone.

“Emirates Telecommunications has said this isn’t the beginnings of a takeover bid and is supportive of Vodafone’s position. The premium paid for the stake suggests there is indeed a lot of faith in a turnaround for the battered Vodafone group. While progress is steady, it’s hard to get away from the fundamental truth for telecoms – there is very little to differentiate from competitors in any real way other than price. That keeps a lid on margins. Full-year results haven’t been a disaster, but they aren’t exactly shiny either.”

Emilie Stevens, Senior Analyst at Freetrade, comments: “Vodafone has been under serious pressure from investors, with activist investor Cevian recently leading the charge to fix Vodafone. If Cevian had their way, Vodafone might look more like a German telecoms giant complemented by a nice towers/infrastructure business and a leading telecoms and fintech business in Africa. While this is what Vodafone looks like if you close one eye, it’s the UK, Spain and Italian businesses that continue to cause them a headache.

“Nick Read has been longing for an ally to help fight back against ever noisier activists and Vodafone’s newest shareholder E& could be just that. E&’s largely owned by the government of the Gulf state and conveniently run by an ex and long-time Vodafone employee, who judging by the announcement yesterday, still seems to think the sun shines and is taking a supportive role (for now).

“There’s no doubt this takes the heat off Read making immediate decisions, but for a chance at any share price recovery and genuine business improvement, Read will likely have to do something soon. For now, Vodafone remains a sprawling dividend payer. But you’d hope with the latest shakeup in the board room, we’ll be able to say something different next year”.

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