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Institutional investors are taking a dim view on Vodafone shares over the short term, according to data from artificial intelligence consultancy Irithmics.

The Somerset-based consultancy specialises in using machine learning to track investor sentiment around listed stocks, and the sensitivity investors have to good or bad news about a specific stock.

Vodafone shares: little appetite for more from investors

In the case of Vodafone shares, big investors have little to no appetite for the telecoms giant over the short term, and while appetite remains low over the longer term picture, there is a more positive bias. Investors have little appetite for news either, but are not expecting any pleasant surprises from Vodafone shares.

It points to a picture of little further institutional support to the FTSE 100 stock in the short term, possibly reflective of a general risk off approach as the UK awaits the general election result. The data also includes analysis of non-UK investment in Vodafone stock, however, so the local political climate is only going to be one factor in the general lack of sentiment.

Why are institutional investors feeling negative on Vodafone stock?

Vodafone shares have been trading in a range between 158 – 162 over the last month or so. Its last set of results looked relatively positive, boosted by the acquisition of European cable business Liberty Global. So why the negativity from the professionals?

Election fever aside, there was the court decision Vodafone faced in India, which has become an important market for the company. This was an expensive decision by the Supreme Court in India against the company in that country. Vodafone Idea, its India-based venture, is now not going to be contributing to the share price in what Vodafone CEO Nick Reed called “a very critical situation.”

India is proving to be a tough nut to crack for Vodafone, which is running a loss locally in what is emerging as a very hard market to compete in pricewise: in addition, Vodafone also has to battle with a difficult regulatory environment and an unsympathetic judiciary.

Vodafone dividends could be a concern

For a company of this size and stature, there are also the dividends to worry about. Having cut its dividend in May, Vodafone has been suffering from a lack of popularity with dividend-driven investors. This was its first ever dividend cut and it could well be that institutional investors are taking a dim view of this.

Vodafone has also started using words like “challenging trading conditions” in its reports to investors. Debt is becoming a concern for larger investors who have noted that its leverage is increasing, especially post the Liberty Global acquisition. Then there are the 5G auctions.

Vodafone and 5G networks

The roll-out of 5G networks across Europe, but also elsewhere in the world, is a critical consideration for Vodafone, which HAS to be in on these in a big way. But they are going to be expensive, and competition is going to be intense. Vodafone will have to dig deep if it is going to maintain its primacy at a time when there are many smaller and more aggressive companies which will use 5G as an opportunity to break into mobile networks, including in local markets.

There are tons of contracts up for grabs in Europe and North America next year. Institutional investors rightly are not expecting any big news on the dividend front from a company that needs all the cash it can find to participate in these bidding wars.

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Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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