Vodafone announced surprise plans yesterday to buy back £1 billion of its shares. The move came the day after the group suffered the biggest one-day drop in share value in its history.

The shares fell 20p, nearly 14 per cent, to 129p on Tuesday, wiping almost £11 billion from the value of the business as Vodafone alarmed the market by scaling back its revenue forecast to the lower end of its £39.8 billion to £40.7 billion range.

Arun Sarin, the outgoing chief executive, said that the company was facing a “more challenging” environment in Europe as the downturn affects its British and Spanish businesses.

Defending its share price after Tuesday's fall, the group said that the repurchase scheme reflected the board's belief that the share price significantly undervalued Vodafone.

The announcement was seen in the City as a psychological move by the company, but it was not expected to have any significant impact.

By taking a portion of shares out of circulation, buybacks can boost a company's earnings per share (EPS) ratio without changing its price-to-earnings ratio. However, with a market capitalisation of about £69 billion, a £1 billion buyback would have an insignificant impact on Vodafone's earnings.

The move, which needs to be approved at the company's shareholder meeting on July 29, initially helped to claw back some value, with the shares rising by 5p to 134p in early trading, before closing up 2.4p at 131.4p.

Times Recommends

• Lenders face huge hit on mortgage fraud
• Mortgage rescue fund at the ready
• Zoom airline collapses and halts all flights