Questions are rife ahead of Vodafone’s trading update

Speculation surrounding M&A activity in the telecommunications sector has been building, but as yet nothing has materialised.

Until recently, there had been a growing expectation that AT&T would look to structure an acquisition for the cash-rich mobile phone firm Vodafone. However, these strong rumours were quashed by AT&T last week, as it flatly denied it would be launching a takeover of the company. Although ultimately unfounded, this speculation had fuelled an increase of over 27% in the share price over the last quarter, as investors tried to second-guess how the management would spend some of its Verizon windfall. After returning a sizable percentage of these funds to investors, it is anticipated that Vodafone will still have around £30 billion. Following the successful acquisition of Kabel Deutschland, the firm could well be on the lookout for other targets.

At the moment there are numerous questions associated with Vodafone, but the majority of these revolve around who – if anyone – will look to bid for it, or what will the company do with all these funds. Currently the share price has fallen, in line with equities in general, to below the 220p level, taking much of the frothy AT&T bid speculation out of the valuation.

With the relative strength indicator hinting towards the equity being oversold, and the divergence away from the 200-day average being considerably less than at any time over the last four months, this stock looks like one that should more sharply benefit from improving investor sentiment. Only a close below the 200-day moving average would knock confidence.

Vodafone Group plc chart

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