Vodafone has reacted swiftly to yesterday downgrade of its financial forecast and announced a £1 billion (US$2 billion) share repurchase programme with immediate effect. The company said that this action reflects the Board's belief that the share price significantly undervalues Vodafone - and is presumably not at all a panic reaction to the sharp drop in their share price yesterday.

The company's shares fell 14% to 129 pence on Tuesday after it warned revenue would be hit by an economic downturn. They rose 3.3% to 133.3 on the news of the share buyback.

Shares will be purchased on market on the London Stock Exchange in accordance with shareholder approval obtained at the Company’s Annual General Meeting ("AGM") in July 2007 and subject to the renewal of that approval at the Company's AGM on 29 July 2008. The company currently has a market capitalisation of around £70.6 billion (US$142 billion).

The maximum share price payable for any shares will be no greater than 105% of the average of the middle market closing price of the Company's share price on the London Stock Exchange for the five business days immediately preceding the trade date on which any shares are purchased. Any shares repurchased will be held in treasury.

Vodafone Tuesday guided the market to the low-end of its full-year sales range of £39.8 to £40.7 billion, although it reiterated operating profit and cash flow guidance which it will maintain through cost reductions. The group continues to expect adjusted operating profit in the range £11 billion to £11.5 billion and free cash flow of £5.1 billion to £5.6 billion.

Fitch Ratings responded to the news and says that it does not see any immediate impact on Vodafone's ratings. Vodafone's Long-term Issuer Default (IDR) and senior unsecured ratings are 'A-' (A minus). The Outlook is Stable.

"Coming off the back of weak first quarter results, today's share buy-back announcement is less than helpful. However, the share buy-back is a manageable percentage of Vodafone's pre-dividend free cash flow guidance range of GBP5.1bn-GBP5.6bn for 2008/9," says Michael Dunning of Fitch's TMT group.

Fitch notes that Vodafone's capital expenditures are expected to grow on the back of its expansion in India, and this will increase pressure on its free cash flow levels and leverage metric.

Source:cellular-news