It’s for You
The furore over the sweetheart deal between David Hartnett, head of HM Revenue and Customs, and mobile phone giant Vodafone (VOD) seems to have died the death. Vodafone has got away with a much reduced tax bill and no amount of protesting is going to change that.
Nonetheless Vodafone’s share price has been quite weak of late and one wonders why. I certainly wonder why, as I hold some Vodafone shares in the hope that the dividends will recompense me for the extra tax people like me have to pay in its place.
Vodafone’s profits for the year to the end of March came through 9.5% higher at £9.5 billion despite more than £6 billion in impairment charges against its struggling operations in Southern Europe. The company also faces a disputed £1.6 billion tax charge in India, where it may prove much harder to get off the hook than in the UK.
The final dividend is 6.05p, making a total for the year of 8.9p, up 7.1% in line with a promise made last May to raise the payout by at least that amount in each financial year to March 2013.
The key component of increased sales is mobile data services used by people with smartphones to surf the internet or download music. No wonder chief executive Vittorio Colao is fervently heralding the end of phones used merely for making calls to or texting other people. Perish the thought that we should use telephones as if they were, well, telephones.
Mobile data services is growing rapidly in Vodafone’s developed and undeveloped markets. Then there is the question of when, not if, Verizon in the United States, in which Vodafone holds a 45% stake, will start paying dividends.
At around 170p the shares trade on a prospective 10.6 times earnings, falling to single figures next year. The prospective yield is 5.7% this year, rising to 6.2% then 6.9%. That is really hefty for such a profitable company.
Beep Beep
If only life were so sweet at another international colossus, BP (BP.). Its transformational deal with Russian state owned Rosneft has fallen apart spectacularly after BP failed to reach terms with its existing Russian partners in the TKN-BP joint venture.
One can only assume that BP was blinded by the great Arctic oil reserves that Rosneft is waiting to unlock but the whole deal was always fraught with difficulties. You would have thought that BP had run into quite enough difficulties with Russian political machinations to have been a little more wary.
Having snatched the Rosneft deal from under the noses of its rivals, BP will now have the ignominy of watching Shell and Exxon try to grasp the nettle without getting stung.
It is admittedly possible that BP will even now strike a deal to extricate itself from the clutches of its existing partners and snatch victory from defeat. This could be a pyrrhic victory, should it happen. BP was already accused of making too great a concession to Rosneft to strike the deal and it could make matters worse with a similarly over the top concession to its partners.
I have said in previous columns that I bought Shell (RDSB) rather than BP shares some time ago more by luck than judgement. I would not want to swap now.
Nuts in May
Another month has gone by without the slightest sign that inflation will fall back to the 2% target level any day soon, as the Bank of England had us believe until the constant repetition of hand wringing became untenable.
Unlike Mr Maucawber, the Dickens character who constantly believed that something would turn up, BoE Governor Mervyn King has been hoping in vain that something would turn down.
Instead the Consumer Price Index shot up alarmingly from 4% to 4.5% last month, forcing the governor to write his sixth letter of explanation to the chancellor. King admitted that inflation was likely to continue for many months, cutting standards of living and possibly prompting workers to demand bigger pay packets.
It sounds as if the base rate will be staying at 0.5% for a little while longer. Although mortgage rates have no genuine link to base rate, any increase by the BoE would be seized on as an excuse for ramping up mortgage rates.
The vote for an increase is stuck at three Monetary Policy Committee members out of nine. It will surely take at least two more meetings to get the required five for a majority.
Rodney Hobson is a private investor writing about his own portfolio. The opinions expressed in this column are those of the individual, and not of Morningstar, and should not be construed as financial advice.
