YET again, the markets show how dumb they are.
Vodafone, one of the most undervalued dividend-paying stocks in town, today announced it’s tweaking up its investment in the network because it reckons demand is about to surge.
Yet, instead of congratulating it for setting itself up for bigger profits in future years, investors gave it a spanking. Shares fell 6%.
Part of the problem was that its profits were towards the lower end of its forecast range, but the main reason, the sellers bleated, was that Voda’s cashflow would fall as investment spending rose.
Instead of taking an unimaginative, spreadsheet-crawling approach to investing, why not listen to why CEO Nick Read wants to invest now?
He says Covid has accelerated the digitisation plans of homes and businesses by five years, meaning demand for the pipes that run the broadband system will grow enormously.
Not only that, but he spies riches for his network in the EU’s Covid recovery fund — hundreds of billions of euros of which are earmarked for digital infrastructure.
Is he right?
Probably, more right than those selling his shares.
After all, he’s been touring Europe’s capitals advising governments how to digitise their economies for months.
BT saw a similar share price tumble last week when it upped its broadband rollout plans. The falls were reversed over the following days as investors realised growth is a good thing.
Hopefully the same will happen to Voda. Wake up, London; look to the future.