Vodafone’s announcement this morning that it will buy back £1 billion of its shares is all about psychology. Having received a battering on the stock market yesterday after a full-year revenue warning saw close to £11 billion wiped from the value of the business, the world’s biggest mobile phone company is sending the message that its shares are undervalued.

The move has done some good. After falling almost 14 per cent to 129p yesterday — the biggest one-day drop in the company’s history — Vodafone recouped some of its losses this morning, with shares up by 2.2p, or 1.71 per cent, to 131.2p at midday. It also helped revive a flagging FTSE 100 Index, adding 59.6 points to 5,423.7 in early trading after Vodafone's surprise warning saw it plunge 40.2 points.

Today’s announcement is opportunistic.

With a market capitalisation of £69 billion, £1 billion is not a lot for Vodafone but it provides an artificial lift at a time when analysts are predicting more bad news to come in the European telecoms sector. Removing a tranche of shares from circulation will give a welcome fillip to Vodafone's earnings per share without changing the company’s price-earnings ratio.

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