Vodafone shake up leaves share price cold

The news that Vodafone chief executive Nick Read will step down at the end of the year, having only led the company since 2018, and his interim replacement by Margherita Della Valle, Vodafone’s chief financial officer, last week pushed the company’s share price to a 20-year low around the 85 pence mark.

Nick Read’s exit comes less than a month after Vodafone cut its full-year profit forecast, with the group blaming a weak German market which accounts for about 30% of group revenue.

A couple of weeks ago Vodafone’s board agreed that the company needed a new chief executive to improve its’s balance sheet, reduce its huge debts, sell off assets more rapidly and, ultimately, revive its dismal share price which dropped by around 60% during Nick Reid’s tenure.

Under Mr Reid’s direction Vodafone became an unwieldy behemoth with investors such as Europe’s largest, Cevian Capital, Abu Dhabi’s Etisalat, which recently rebranded as “e&”, and French telecoms tycoon Xavier Niel and his Atlas Investissement all making their displeasure known and pushing the company’s CEO to offload struggling divisions.

According to the Sunday Times Niel said Vodafone had become “too fat, too slow, too complex” and that it “must move fast” to slim down and slash debt by “selling infrastructure and smaller non-core assets in order to regain financial flexibility”.

Its German arm, which used to be the telecom giant’s poster child with an annual growth rate of 5% and makes up a fifth of Vodafone’s entire profits, has lost its sparkle and even went into reverse as a new telecoms law in Germany forced housing associations, with which Vodafone has deals, to stop bundling cable TV in with rental fees, losing the company a lot of business as customers stopped paying for services they were no longer forced to pay for.

In the UK, which generates 14% of turnover, Vodafone remains in talks with rival Three to create a joint venture, but those discussions have been dragging on since May with no end in sight. Another 13% of revenues are split between seven other European countries, making the whole company too widely spread out, according to several analysts and investors.

How to trade Vodafone shares

Refinitiv data shows a consensus analyst rating of ‘buy’ for Vodafone – 5 strong buy, 5 buy, 9 hold and 5 sell - with the median of estimates suggesting a long-term price target of 130p for the share, roughly 49% higher than the current price (as of 12 December 2022).

IG sentiment data shows that 98% of clients with open positions on the share (as of 12 December 2022) expect the price to rise over the near term, while 2% of these expect the price to fall whereas trading activity over the last week showed 61% of buys and this month 57% of buys.

Technical analysis on the Vodafone share price

Vodafone’s share price has slipped by over 65% from its 258 pence 2015 peak and by around 25% year-to-date and is fast approaching its 2002 low at 79.28p around which it may well find at least short-term support as it represents a 20-year low and as such key support.

Last week the Vodafone share price managed to stabilise around the 85p mark, at 20-year lows, with a minor short-term technical buy signal being produced on Monday morning when its share price rose above Friday’s inside day high at 86.89p.

An inside day – or Harami when looking at candlestick charts – is formed when a day’s range falls within that of the previous day. It denotes indecision and when broken out of on the following day produces a technical buy or sell signal which probably only has a 50% chance of being profitable but when used in conjunction with solid risk management can still generate profits in the medium- to long-term.

This is because of the low initial risk it entails, namely if going long, for example, placing a stop loss order below the low of the day or candle preceding that of the inside day or Harami.

For the Vodafone share price this means that a short-term buy signal has been triggered at 86.90p with a stop loss below last week’s low at 84.95p. An immediate potential upside target is the 89.87p November-to-December downtrend channel resistance line and the 24 November low.

While the next higher early December high at 93.40p hasn’t been overcome on a daily chart closing basis, however, the Vodafone share price remains in a clearly defined downtrend as it displays a series of lower highs and lower lows on the daily chart.

Only a currently unexpected bullish reversal to above the 108p November peak, around 23% higher than current levels (as of 12/12/2022), would negate this year’s medium-term bear market for the stock. Below it lies good resistance between the October low at 97.40p and the psychological 100p mark.

Were failure at 84.95p and a tumble to below the 2002 low at 79.28p to take place, a potential fall all the way to the 50p region could be a possibility.