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Vodafone (LSE: VOD) shares had been climbing quick this time final 12 months, leaping 15% in a matter of weeks. It was the primary signal of life from the FTSE 100 telecoms group in years, and I used to be tempted to take a more in-depth look.
So I did. And after weighing up the numbers, the debt, the dividend outlook and the long-term share value development, I got here to a transparent conclusion. I wasn’t shopping for.
For me, the dangers nonetheless outweighed the potential.
I’ve been a Vodafone sceptic for a very long time and didn’t see sufficient within the restoration story to vary my thoughts. I wasn’t drawn in by the then-tempting 10.4% yield, understanding that it wouldn’t survive.
Nor was I satisfied the long-promised turnaround was lastly beneath approach. I mentioned I wouldn’t contact Vodafone shares with a bargepole. So, did I make the precise name?
A lukewarm comeback
A fast look on the Vodafone share value calms the nerves. Over the previous 12 months, the inventory is up simply 2.8%. Not dangerous by its personal requirements, particularly given the current volatility. However it nonetheless lags the FTSE 100, which is up 6.2% over the identical interval.
FTSE 100 rival BT Group delivered a 40% share value surge within the final 12 months, displaying what a correct telecoms turnaround can seem like. Vodafone merely hasn’t matched that.
It does have its strengths. The trailing yield remains to be respectable at 4.9%, comfortably above the index common of round 3.6%.
It isn’t that costly both, with a price-to-earnings ratio of 11.6.
Blended alerts
The group’s 2024 outcomes, revealed on 20 Might, painted a combined image. Complete income rose 2% to €37.4bn, with natural service income up 5.1%.
There was sturdy progress in Africa and Turkey, however a 5% decline in Germany because of harder regulation and fierce competitors. Vodafone suffered a €400m working loss, though it wasn’t helped by a €4.5bn impairment cost.
The board did announce a €2bn share buyback although. That ought to help the share value within the quick time period.
CEO Margherita Della Valle insisted Vodafone has “modified”, however I nonetheless must see extra proof
Watch and wait
Telecoms stays a troublesome sector. It calls for heavy funding and presents little room for error. Vodafone’s internet debt stays stubbornly excessive at €33.9bn. The turnaround story is actual, however it’s not but full.
Analyst sentiment displays the uncertainty. Of the 15 providing inventory scores, 4 say Purchase, 4 say Promote and the remaining are sitting on the fence. That’s the most important Promote ratio I’ve seen for some time.
Analysts forecast a median one-year share value goal of simply over 85p, a modest 10% acquire from right this moment’s value. Mixed with the yield, that may provide a 15% return. That may be a great 12 months by Vodafone’s requirements. We’ll see.
In a single respect, the shares we don’t purchase are simply as vital as those that had been. So it’s price trying again, every now and then. Hopefully, not with anger.
For now, I nonetheless see higher locations to take a position. Others would possibly think about shopping for Vodafone, however I’m protecting my bargepole useful.
