Why I'd ditch this super growth stock to buy Vodafone Group plc
Mobile payments platform Bango(LSE: BGO) first went public in 2005, and over the past 12 years, the company has struggled to become relevant.
Since coming to market, the shares have gained 33%, but this has been a rocky ride. After reaching a peak of 278p in 2013, the shares fell 85% to just 40p at the beginning of 2016 on weak trading. Since hitting this low, they have bounced, rising 234% year-to-date as the firm's outlook has improved.
Bango enables payments for apps and games including Pokemon Go, and earlier this year, the company announced a new payment method for customers of global online retail giant Amazon. Under the terms of the deal, Japanese Amazon customers can pay for physical goods from Amazon.jp by adding the cost of the goods to their mobile phone bill. With the Japanse e-commerce market worth an estimated $100bn a year, this is a tremendous opportunity for the group.
According to today's interim results release from the company, these growth initiatives are starting to pay off.
For the first half, End User Spend jumped 100% to £92.3m, with annualised EUS now over £400m, up more than 140% year-on-year. Off the back of this rising transaction volume, revenue increased 114% to £1.7m and losses before interest, tax, depreciation and amortisation improved slightly from £1.6m to £1m. Cash at the end of the period was £5.6m, which according to management is "sufficient to fund the group through profitability."
High risk, high reward
Looking at today's results, it's clear that Bango is heading in the right direction, and the company has a tremendous opportunity ahead of it. Nonetheless, Bango is still lossmaking and has a lot to do before its market value of £150m is justifiable.
Put simply, to me it looks as if Bango is a blue-sky company, and while the company may turn out to be the next tech unicorn, the shares remain a high-risk, high-reward investment.
That's why I'd ditch the company in favour of Vodafone(LSE: VOD) one of the FTSE 100's most reliable income plays.
Out of favour
Vodafone has fallen out of favour with investors over the past year lagging the FTSE 100 by 12% excluding dividends since mid-September last year.
It seems as if the market is concerned about the telecoms group's growth potential. Results for the year to March showed a loss of EUR6.1bn due mainly to a EUR3.7bn writedown in the value of the Indian business. Overall revenue decreased 4.4% EUR47.6bn due partly to foreign exchange movements. Organic service revenue expanded 1.9% over the course of the year.
These figures show that despite the writedowns, Vodafone is making progress. And management is extremely confident about the group's outlook. Adjusted earnings before interest, taxation, depreciation and amortisation are expected to expand between 4% and 8% for fiscal 2018, compared to 3.4% for 2017. Free cash flow is projected to hit EUR5bn up from EUR4.1bn.
Free cash flow growth should underpin the firm's dividend payout. City analysts believe Vodafone will pay a dividend of 13.1p per share to investors for the year ending 31 March 2017, giving a highly attractive dividend yield of 6.3%. On a cash basis, this payout is set to cost the company approximately EUR4.1bn, easily covered by management's free cash flow target of EUR5bn for the year.
10 steps to a million
Vodafone might not be the market's most exciting company, but it is one of the FTSE 100's most dependable dividend stocks.
It's essential to include companies like Vodafone in your portfolio, to provide you with a steady income through the good times and the bad, leaving you free to concentrate on other investments, as well as living your life.
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Rupert Hargreaves does not own shares in any stock mentioned. The Motley Fool UK owns shares of and has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.