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Last updated: October 25, 2012 5:06 am
Vodafone slipped to a four-month low as speculation grew about the future of its US business.
Analysts at Bernstein Research revived the idea that the group might sell its stake in the Verizon Wireless joint venture and reinvest the proceeds.
With European mobile markets deteriorating rapidly, Vodafone needed to address how it intended to compete against companies bundling mobile services with TV and broadband, Bernstein told clients.
Vodafone faced “an urgent need for major strategic change in Europe”, said analyst Robin Bienenstock. But Verizon Wireless was trading near all-time highs with “US investors appearing to suspend disbelief on the impending deterioration of the US wireless market,” she said. “There may never be a better time for Vodafone to relinquish its 45 per cent of Verizon Wireless.”
Vodafone has long been the subject of speculation about a Verizon buyout, though most theories stall on the size and tax implications of any potential deal.
Bernstein’s solution was for Vodafone to swap its Verizon Wireless stake for about £30m in cash, a 19 per cent holding in the enlarged Verizon and full control of the companies’ Italian subsidiary. The Luxembourg tax assets Vodafone acquired with C&W Worldwide earlier this year might be useful to avoid a huge capital gains bill, Ms Bienenstock added.
She also had suggestions on which cable companies Vodafone should buy. Liberty Global, the $16bn-valued European operator, “has a near-perfect footprint to match Vodafone” while private equity-owned ONO would add a strong position in Spain at a cost of about €4.5bn, she said.
Vodafone ended 1.5 per cent lower at 172.5p, underperforming a flat UK market. The FTSE 100 was up 0.1 per cent, rising 6.87 points to 5,804.78.
Amec led the blue-chip fallers, down 2.9 per cent to £10.49, after both Goldman Sachs and Merrill Lynch cut earnings forecasts, largely to reflect budget cuts among miners and shale oil companies.
WPP slipped 1.5 per cent to 808p a day before results from the advertising group. “We believe management may reduce its full-year forecast of 3.5 per cent organic growth,” said UBS, which took WPP off its “buy” list.
Salamander Energy dropped 10.1 per cent to 182.5p on word that Standard Chartered, a 9 per cent shareholder, was selling its stake via Barclays. Dealers said Standard Chartered’s stock had been placed successfully during the day at 191p apiece, but that an untidy closing auction had deepened the session drop.
Ophir Energy fell 5.2 per cent to 551p after a capital markets day on Tuesday raised worries about its exploration plans and cash reserves. Merrill Lynch cut Ophir from its “buy” list on hearing that Ophir’s Tanzania prospect was distinct from fields off the coast of neighbouring Mozambique, which had already proved successful for Eni and Anadarko. The unproven field therefore deserved a bigger valuation discount, it said.
Merrill also worried about a $450m funding shortfall in Ophir’s spending plans for 2013. Drilling might be slowed or cash raised if the group failed to bring in any partners within the next four months, it said.
Bus operator National Express dropped 12.6 per cent to 180.4p after damping 2013 guidance to reflect fuel costs and pressure from austerity measures.
Among the gainers, Arm Holdings rose 5.6 per cent to 675.5p as upgrades followed the chip designer’s third-quarter results on Tuesday. “We believe a beat in the fourth quarter is of easy reach to Arm,” said Bernstein Research.
Wolseley , the builders’ merchant, rose 1.6 per cent to £26.77 after giving a reassuring view on current trading during an analyst trip to Washington.
Home Retail Group rose 1.5 per cent to 105.7p after delivering better than expected interim earnings to accompany a relatively modest plan for updating its Argos catalogue business. Analysts saw investment into IT and online marketing as sensible but were surprised that there was no acceleration of store closures.
Punch Taverns edged 2.2 per cent higher at 6.6p even after warning shareholders that its debt securitisation vehicles were “over-levered and unsustainable in their current form”. Analysts predicted a debt-for-equity swap, though they saw shareholders having some protection thanks to Punch’s stake in drinks supplier Matthew Clark, which has a balance sheet value of about 7p per share.
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