The network infrastructure and the communication development are the key operational strategy of Vodafone to be the world’s most accepted and popular telecommunication company. The operational performance of Vodafone and BT PLc are compared with the help of operating profit margin and return on equity in the last five years.
As BT plc has been founded from the merger of T-mobile and Orange and that is why the company possesses largest market share. However, the cost focus and differentiation strategy has enabled vodafone to attain competitive advantage over BT plc. Therefore, being the telecom operator in the same industry, the customers and suppliers of both the companies are common creating intense competitiveness under the target business regions.
Equity valuation delivers the data regarding the return on the equity to be provided to the equity shareholders of vodafone and BT PLc. according to the market share and popularity, the equity valuation of Vodafone is quite sound over BT PLc. Flynn et al. (2010, p.65) stated that the equity valuation can be done by dividend discount model.
Dividend discount model of Vodafone
The market price of share of Vodafone can be evaluated by the dividend discount model as follows-
P = D1/ (Ke – g)
P = Market price of Vodafone
D1= Expected dividend = D0 (1+g)
Ke = Cost of capital= 18.66%
g= growth rate= 12.85%
Hence, as per the calculated data in the spreadsheet the market price of share of Vodafone needs to be P = 47.66. However, vodafone is traded at 228. Hence, it can be inferred that the vodafone equity share is trading at higher than the theoretical value. Therefore, the shares of Vodafone are overvalued in the market. Hence, investors are required to sell the equity stock of Vodafone at this time.
Dividend discount model of BT plc
P = D1/ (Ke – g)
According to the calculated data in the spreadsheet, the market price of BT Plc is needs to be 534.69. BT PLc is not publicly traded company at present but if it issues the share more than £534 the investors needs to avoid the purchasing decision of the stock at the present level.
According to the above valuation, the BT PLc stock is highly valued compared to Vodafone according to dividend discount model.
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