Picture supply: Getty Pictures
The Vodafone (LSE: VOD) share worth has been spreading distress for years. It’s been one lengthy story of woe, falling from a dotcom growth peak of greater than 500p to a depressing low of 63p in February 2023. I’ve been amazed the telecoms inventory has managed to cling on to its FTSE 100 itemizing.
That stated, the late-90s tech growth was clearly overcooked, and Vodafone did brilliantlly simply to outlive the crash. It’s additionally churned out billions in dividends over time. However I by no means noticed that as correct compensation for the relentless capital destruction. The yield was so excessive largely as a result of the shares stored collapsing.
Beneath CEO Margherita Della Valle, appointed in April final 12 months, issues could lastly be turning. Vodafone is up nearly 15% over 12 months, with many of the achieve coming within the final quarter. It’s now buying and selling round 80p. That’s nonetheless risky, however so is all the pieces in at the moment’s unsure market.
Revenues up
Full-year outcomes revealed on 20 Could hinted at a enterprise discovering its ft. Income rose 2% to €37.4bn, with service income up 5.1%. The massive drivers had been Africa and Turkey, up 11.3% and 83.4%, respectively.
A €4.5bn impairment cost pushed the group to a €400m working loss, however the board nonetheless confirmed one other €2bn share buyback.
Crucially, the reshaped group now leans extra closely in direction of high-growth markets, which produce two-thirds of its adjusted free money stream. As Della Valle stated: “Vodafone has modified.”
The dividend is one other story. It was slashed by 40% in 2019 to 9 eurocents per share, stayed flat for 5 years, then halved once more to simply 4.5 cents in 2025. For anybody holding the inventory for earnings, it’s been grim.
The trailing yield continues to be a good 4.75%, lined 1.7 occasions by earnings. Forecasts present the dividend dipping barely to 4.2 cents in 2026, then nudging increased to 4.3 cents the 12 months after. By 2027, dividend cowl is anticipated to hit 2.1, so there’s an opportunity the payout lastly stabilises. A price-to-earnings ratio of 11.7 suggests there could also be worth right here.
Debt and destruction
The group’s debt pile continues to be heavy although, falling barely to €31.8bn in September 2024 because of asset gross sales. However that’s nonetheless a great distance from gentle.
Capital expenditure may even keep excessive. On 2 June, Vodafone UK and Three UK confirmed they’d spend £1.3bn within the first 12 months of their merger, now branded VodafoneThree. Whereas the tie-up ought to ship £700m in annual value and capex financial savings inside 5 years, that’s an extended wait.
Return on capital employed is simply 0.6%, which displays years of underperformance.
Based on 14 analyst forecasts, the median one-year Vodafone inventory worth goal is 84.5p. If appropriate, that’s an increase of slightly below 5%. With the yield, the entire return may hit 9.5%. If that performs out, £10,000 would flip into £10,950.
It’s a begin. However it’s hardly thrilling. And forecasts are simply that. Rather a lot can go mistaken.
I’ve prevented Vodafone for many years and accomplished properly consequently. For the primary time, I’m tempted. However on stability, I nonetheless don’t suppose it’s price contemplating at the moment. I can see much better progress performs throughout the FTSE 100 and FTSE 250, and much more tempting dividend shares.
