With Q3 revenue up 5%, why does the Vodafone share price keep falling?

Yesterday (4 February), wasn’t day for these with a vested curiosity within the Vodafone (LSE:VOD) share value.

The worth of the telecoms big fell 7%. This was regardless of it saying a 5% enhance in income for the quarter ended 31 December 2024 (Q3), in comparison with the identical interval a 12 months in the past.

Encouragingly, the development in gross sales has helped the corporate’s backside line. Wanting again to the beginning of its 2024 monetary 12 months, the quarter noticed its highest earnings. Additionally, there was a internet enhance of 23,000 cellular prospects through the interval.

This meant the corporate was capable of reiterate that it was on track to report EBITDAaL (earnings earlier than curiosity, tax, depreciation and amortisation, after leases) — its most well-liked measure of profitability — of “circa €11bn” (£9.15m) for the complete 12 months (FY25).

That is according to the forecasts of the 12 analysts masking the inventory. Their vary of estimates is for FY25 earnings of €10.94bn-€11.28bn, with a mean of €11.02bn.

On the face of it, the response of buyers is shocking to me.

Digging deeper

However income in Germany continues to be falling. In 2024, the federal government outlawed the sale of bulk pay-TV contracts in residence blocks. This implies residents are actually allowed to decide on their very own suppliers.

Because of this, Vodafone misplaced over half of the shoppers affected. Though this was anticipated, excluding these impacted by the regulation change, service income was nonetheless down 2.6%.

That is clearly a priority on condition that 34% of the group’s income comes from the nation.

After which there’s the perennial drawback of Vodafone’s debt. Telecoms infrastructure doesn’t come low cost, which implies the group’s needed to borrow monumental sums.

To handle the problem, the corporate’s been promoting varied divisions and non-core belongings to generate some funds to assist cut back its stage of borrowings.

The sale of its Italian enterprise introduced in €8bn of money. Of this quantity, €2bn is predicted for use for share buybacks and the remaining for paying down its debt. There was no point out of present internet debt ranges within the Q3 announcement. This may also clarify the obvious investor nervousness.

Irritating occasions

Nevertheless, though I acknowledge these issues, I wrestle to know the apathy in direction of the corporate. It’s not a latest phenomenon. For a number of years now, the share value has been falling. It’s onerous to imagine that Vodafone was as soon as the UK’s Most worthy listed firm.

It exited Italy for 7.6 occasions EBITDAaL. On this foundation, Vodafone needs to be valued at €83.6bn (£69.5bn). However companies are often bought with none debt. At 30 September 2024, the group had internet debt of €31.8bn (£26.4bn). Take away this and I feel a valuation of €51.8bn (£43.1bn) will be justified.

That’s a 155% premium to its present inventory market valuation.

With a yield of 5.6%, the dividend’s not unhealthy both — the common for the FTSE 100 is 3.6%. Though the 50% minimize in 2024 is a stark reminder that payouts are by no means assured.

Trying to the longer term, regulatory approval has been obtained to merge its home operations with Three. Curiously, excluding Türkiye — the place income was helped by rampant value inflation — the UK market noticed the largest enhance in Q3 gross sales.

For these causes, I feel Vodafone’s a inventory that worth buyers ought to take into account shopping for.