Vodafone unveils surprise $2 bln share buyback

Mobile phone group Vodafone moved quickly to defend its share price on Wednesday, announcing a surprise 1 bln-pound ($2 bln) buyback program after its stock crashed a day earlier on a weaker-than-expected trading update. Vodafone shares slumped almost 14% on Tuesday, wiping nearly 11 bln pounds of its market value, after the group said its full-year revenue would be at the bottom of a previously stated forecast range.
The news dented hopes the Britain-based firm would be relatively resilient to an economic downturn and cast a shadow over the whole telecoms sector.
"The board of Vodafone Group Plc has considered the market reaction … and has decided to introduce a 1 bln-pound share repurchase program with immediate effect," the world's biggest mobile phone group by revenue said in a statement.
This action reflects the board's belief that the share price significantly undervalues Vodafone."
Shares in the group were 2.5% higher in early trading on Wednesday, in an overall higher market, valuing the company at 81 bln pounds.
Collins Stewart analyst Mark James said he expected a relief rally in the telecoms sector on Wednesday, helped by the Vodafone buyback and positive news from the Dutch telecoms group KPN, but he remained concerned about the future.
"We believe that the medium-term outlook for telco cash generation is deteriorating," he said in a note to clients.
"Spectrum auctions; M&A; increasing competition/ regulation and convergent business models may all dent cash generation, and as Vodafone Q1 has shown, not even telcos are immune to an economic slowdown.
"We believe underperformance is set to continue."
Vodafone lowered its outlook on Tuesday citing economic weakness, particularly in Spain, which was resulting in fewer customers buying and using new handsets.