New Value Analysis of Vodafone Plc (LSE:VOD)
New Value Analysis of Vodafone Plc (LSE:VOD)
A new value analysis of Vodafone Plc (LSE:VOD), a company listed on the London Stock Exchange, has been added to our research pages here. Vodafone provides mobile and fixed line telecommunications services in Europe, the Middle East, Africa and Asia Pacific through the Company’s subsidiary undertakings, joint ventures, associated undertakings and investments.
You may have guessed that the last part of the description in the first paragraph is taken from the Vodafone website. Normally, the idea that a global company uses subsidiaries and joint ventures to deliver its service is not particularly remarkable. However, in the case of VOD it is interesting right now from a value investor’s point of view.
The 2017 Annual report shows a loss of €6.3 billion. VOD also reports an adjusted profit of €2.2 billion. So which number can be used by value investors? The two big factors the turn an adjusted profit to a reported loss are the way VOD treats its Indian business and the tax assets of the parent company in Luxembourg.
VOD is changing the way it conducts business in India from an operating subsidiary to a joint venture with a local telecoms operator, Idea Cellular and as a result Vodafone India is now excluded from the Financial Reports and VOD has recognised a €4.1 billion impairment on the value of its Indian assets in the 2017 Report. This is not a cash item and just relates to a change in the ownership structure of assets in India. This is why I referenced the different business structures identified on VOD’s website.
A change in the corporation tax rate in Luxembourg means that VOD has written down the value of its taxation assets by €3.8 billion.
It is unlikely that the impairments relating to Indian assets and Luxembourg tax rates reported in the 2017 Annual Report will be repeated at that kind of value in future years. Therefore, it is acceptable for value investors to consider the adjusted earnings numbers when looking at an investment.
Before making an investment in VOD each value investor should consider their own level of sophistication. Defensive value investors or novice value investors would not consider an investment in VOD common stock. The defensive value investors should use reported earnings to assess the price against earnings to get an idea of value. Only investors who are comfortable with the difference between adjusted and reported earnings can consider an investment in VOD common stock.
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