Trading in pennies, is the Vodafone share price about to take off?

Although the market capitalization is close to £27bn, the stock in Vodafone (LSE: VOD) continues to change hands for every pound. But can it be changed? Here are some of the potential drivers I see for Vodafone’s share price in 2023 – as well as key risks.

interest is noted

It has been revealed that the telecommunications giant Liberty Global has bought a 4.9% stake in the UK-based operator. This may be important, as Liberty has deep experience in the consolidation of the telecommunications industry.

However, this does not mean Liberty will increase Vodafone’s stake. But I see that as a possibility which, if it happens, will likely boost Vodafone’s share price markedly.

Value Vodafone

I am pleased that a sophisticated and experienced global telecommunications operator sees enough value in Vodafone’s current share price to buy shares worth over a billion pounds. Liberty has a deeper understanding of telecom valuations than I or most private investors. That can suggest the current Vodafone share price as a bargain for my portfolio.

But that may not be the case. Liberty is a trading buyer, while private investors like myself have financial motives. Liberty may see some strategic value in Vodafone shares that may not warrant interest to me. As always in the stock market, I have to make my own judgment on how to calculate the stock.

Then again, Liberty isn’t the only investor circling Vodafone. It was announced this month that Emirates Telecommunications has also increased the stake in the business to over 13%. Although he has previously said that he does not plan to bid for all of Vodafone, the stake-building suggests that – like Liberty – he sees value in the current share price.

High yield shares

Another indicator that may suggest a stock price is too low, relative to its intrinsic value, is the current dividend yield.

Vodafone’s share price has fallen 29% over the past year. While dividends have been held flat, falling prices have pushed yields up to 7.9%. That’s high for a blue-chip FTSE 100 steady

But sometimes high results can be a warning sign. The City may be taking a cut of the dividend from Vodafone, so the results are looking very palatable.

Balance sheet risk

Telecom companies have a history of this, having cut their dividend by 40% in 2019. That move hardly inspires my confidence in the company’s dividend prospects.

It also had €45.5bn of net debt on its groaning balance sheet at the end of the first half of the financial year. A service that can eat profits.

That creates a real risk of a dividend cut. In the first half, the company had adjusted free cash flow, meaning more money was going out than coming in.

However, I continue to see value in the firm, thanks to its massive network, large customer base and strong brand. I think a lot of interest from investors including Liberty can help raise Vodafone’s share price out of the doldrums. I continue to hold shares.