Picture supply: Vodafone Group plc
The Vodafone (LSE:VOD) share value soared over 7% yesterday (20 Might) following the discharge of the group’s outcomes for the 12 months ended 31 March 2025 (FY25). However after a day of reflection, I nonetheless don’t get it.
All year long, the corporate’s administrators have been telling traders that adjusted EBITDAaL (earnings earlier than curiosity, tax, depreciation and amortisation, after leases) can be €11bn. And so they have been proper. The ‘enterprise as normal’ announcement makes the share value motion a little bit of a puzzle to me.
Generally, it’s laborious to imagine that Vodafone was as soon as the FTSE 100’s most useful firm. Its fall from grace has been spectacular. Over the previous 5 years alone, its inventory value is down over 40%.
In distinction to this, Europe’s largest telecoms operator, Deutsche Telekom, seems to go from energy to energy. Since Might 2020, its share value has risen almost 150%. In 2024, its adjusted EBITDAaL elevated by 7.9% whereas Vodafone’s was flat.
Contrasting performances
And it’s their efficiency in Germany that almost all differentiates the 2 teams.
Contributing 32% of income, the nation is Vodafone’s largest market. For Deutsche Telekom, it ranks second and accounts for 22% of web income. Impressively, the group’s simply recorded its thirty fourth consecutive quarter of EBITDAaL development within the territory.
However Vodafone’s been badly affected by the change in regulation proscribing the bundling of tv contracts in multi-dwelling items. Evaluating FY25 with FY24, income fell 6%, adjusted EBITDAaL was 12.6% decrease and its margin tanked 2.7 share factors.
The outlook’s additionally gloomy.
Vodafone’s written down the worth of its German enterprise by €4.35bn. This isn’t a money merchandise however it displays “administration’s newest evaluation of possible buying and selling and financial circumstances within the five-year marketing strategy”.
Falling debt
Nevertheless, one space the place Vodafone has made progress is in decreasing its gearing.
At 31 March, web debt had fallen to €22.4bn. Over the course of the 12 months, that’s a €10.8bn discount. This has been achieved by utilizing the proceeds from the sale of many non-core property and divisions. Though spectacular, it have to be remembered that the group’s change into rather a lot smaller.
However its indebtedness is now equal to 2 instances FY25 adjusted EBITDAaL. Deutsche Telekom’s is 2.6 instances.
Maybe traders will cease utilizing debt as a keep on with which to beat Vodafone? With Germany performing poorly and its return on capital unchanged, there are different weapons obtainable.
Remaining ideas
I’ve lengthy argued that Vodafone is undervalued in comparison with its friends. And regardless of the issues I’ve famous above, its FY25 outcomes haven’t modified my view. However I didn’t see sufficient in yesterday’s announcement to justify the 7% enhance within the group’s market cap.
When it comes to valuation, Deutsche Telekom trades at 14.7 instances its newest full-year post-tax earnings in comparison with 11.5 instances for Vodafone.
In my view, to realize a better valuation, the group must persuade traders that it will probably develop its earnings as a FTSE 100 firm ought to. For FY26, it’s forecasting EBITDAaL of €11bn-€11.3bn. Even on the high finish, that’s a really modest enhance.
After reflecting on the outcomes, I’m going to carry on to my shares. Exterior Germany, the group’s doing okay. Additionally, the inventory pays an above-average dividend which gives some consolation if the share value continues to battle.
As for yesterday’s share value response… I do not know!
