Vodafone's value mask

Vodafone's annual report came out on Tuesday and I am feeling a lot happier about having so much VOD now. The dividend increases and special dividend have been well documented elsewhere but I am interested in the PE of VOD if the Verizon Wireless (VZW) stake is factored out.

VOD reported EPS of 10.11p for a basic PE of 12.2. This sounds reasonably low but considering the slow revenue growth certainly not astoundingly cheap.

The interesting thing is that to my knowledge the VZW stake is not paying dividends at the moment (I mean literally) so is not contributing to the top or bottom line. So what happens if you take out the VZW stake?

Lets give Vodafone 45% stake a conservative value of $45 billion = £25 billion. Removing that from the market cap. gives a market cap of £50 billion. Divide £50 billion by the profit of $6.16 billion to get a PE of 8.1!

Or to put it another way the market is valuing Vodafone's VZW stake at far less than Verizon will have to pay to buy it out.

If and when Vodafone sell their VZW stake the share price will jump. It is just a question of how much.

I feel my VOD shares have great potential energy!