The telecoms sector is unexpectedly drawing significant investor attention, with major stakes acquired by billionaires in companies like BT and Vodafone, prompting speculation about the sector's future profitability. This surge of interest coincides with the upcoming inauguration of Andy Burnham as prime minister, who has previously expressed ambitions for greater public control over essential services, including utilities.
The French entrepreneur Xavier Niel recently purchased a 16.2% stake in Vodafone for £4.4 billion through his family vehicle, Vega. Niel, who had a prior, brief holding in Vodafone in 2022, has indicated confidence in the company's turnaround potential. Vodafone is currently undergoing a merger with the Three network, a move seen as crucial for accelerating its 5G infrastructure rollout. However, challenges remain, particularly in Germany, Vodafone's largest market, and the company's significant debt.
At BT, two prominent billionaires are already shareholders: Indian tycoon Sunil Bharti Mittal, who holds a 24.5% stake, and Mexican magnate Carlos Slim, with 4.2%. Since Mittal's arrival in August 2024, BT shares have seen a notable increase. While a full takeover by Mittal is considered unlikely due to potential government objections, his presence as a director is seen as influential. Analysts largely view BT shares as a 'hold', but some brokers have set ambitious target prices, suggesting potential upside if the sector is not a priority for the new government.
Niel's re-entry into Vodafone suggests a belief that cost-cutting measures can improve the company's performance, despite its ongoing issues. Analysts generally recommend a 'hold' on Vodafone shares, though some see the combination of CEO Margherita Della Valle's strategy and Niel's focus on economizing as a catalyst for growth, with at least one analyst rating the shares a 'buy'.
The potential for increased public ownership under Burnham casts a shadow over the utilities sector. Recent financial figures from Thames Water highlight the industry's struggles, with listed water companies like Pennon, Severn Trent, and United Utilities facing increased regulatory scrutiny and the risk of nationalization. While the cost of full nationalization might deter the government, fears of stricter regulation persist for energy companies as well.
However, the increasing demand for electricity driven by the artificial intelligence (AI) revolution could offer a counterpoint for energy stocks. Burnham's administration has expressed an interest in leveraging AI for domestic companies and consumers, a policy direction that could be supported by investors in the British market.