Green changes his tune on Vodafone

Allianz Dresdner UK Growth fund manager Trevor Green has warmed to Vodafone, believing third-generation success is on the cards.

In November the manager predicted that the company needed a year to prove the new technology will make a difference. Until then Vodafone’s share price would not improve, he forecast. But now he says 3G products are going to be behind a pick-up in business.

Green says the firm’s dividends are set to grow. This, he adds, is an important signal: “It is a good indication that things are going well. Strong phone sales and an optimistic outlook for 3G phones are underpinning it.”

The fund manager, who said last year that he was likely to reduce his exposure to the company, instead stuck with the stock. He maintained an overweight position and currently has a 9.5% stake, against 7.3% in his portfolio’s FTSE All-Share index benchmark.

Last week Vodafone rallied after Goldman Sachs raised its rating. The bank said benefits from 3G technology would be priced into the stock in 2004. The share closed 2.7% higher on the day the announcement was made.

Both Goldman and Deutsche Bank published upbeat notes on the wireless sector in general last week. Deutsche analyst Martin Mabbutt said: “We see a shift from paying down debt towards increased returns to shareholders via buybacks and increasing dividends.”

SocGen UK Growth and Old Mutual UK Select Equity fund managers Hugh Sergeant and Richard Moore share Green’s enthusiasm for Vodafone. They are both overweight the company relative to the All-Share. At the end of December Vodafone made up 9% of Moore’s portfolio.

But overall Green is less upbeat on the telecoms sector than Sergeant. He is 1% overweight the category, while his peer is a hefty 5.5% ahead of his benchmark. Green says there is potential for telecoms to disappoint in 2004: “If the economic recovery we have seen in the US starts to feed through to the UK, then telecoms is going to look dull in comparison to other areas.”

The fund manager says dollar weakness is another problem because it will affect overseas earnings. Vodafone is insulated from this, he says, because of its worldwide exposure.

The difference in view between Green and Sergeant can be seen in their holdings of BT. While Green is underweight the company, the SocGen manager is overweight.