Jamie Hooper is lead fund manager of AXA Framlington UK Growth fund (GB00B51R1233), which aims to invest in large and medium cap companies that show strong profitability and growth. He believes the global thirst for data means Vodafone (VOD)'s woes are over.
"The data and technology cycle is rapidly evolving," he says. "From the mainframe to the PC, from the internet to mobile and 4G/LTE networks today. There are more connected devices than people on Earth and our consumption of mobile data is now eight times the size of the entire global internet in 2000. CISCO estimates there will be upwards of 50bn connected devices by 2020.
"There are many weird and wonderful ways of playing these themes: big data, the cloud and the 'internet of things' are the buzz-word of our time. But an unlikely choice is Vodafone, a large blue-chip mobile telecoms operator that has had its struggles. Having overpaid for spectrum it helped build the 'dumb-pipes' which led to the success of Apple, YouTube, Amazon that we know today. The EU regulator has championed the consumer imposing price cuts and caps, hindering revenue growth.
"However, this is changing and Vodafone is facing its best outlook in a decade. The regulator now acknowledges the need for greater investment in quicker internet connectivity, permitting consolidation of mobile telecom players, as seen in the UK. Yet most important is our insatiable appetite for data. In the US, where the 4G network is more advanced, data usage and pricing has risen meaningfully. For example watching Netflix for 30 minutes consumes 11,000x more data than that of a simple email.
"Vodafone is now in the foothills of an upgrade cycle. Every 1 per cent increase in revenues translates to a 5-6 per cent increase in profits. In the meantime it pays a very attractive 5 per cent dividend yield whilst you wait."
The last IC's recommendation on Vodafone shares was 'sell' at 229p on 11 February. On 24 February the shares were trading at 227.1p.
