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Vodafone (LSE: VOD) shares have been climbing quick this time final yr, 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 better look.
So I did. And after weighing up the numbers, the debt, the dividend outlook and the long-term share value pattern, 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 alter 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 means. I stated I wouldn’t contact Vodafone shares with a bargepole. So, did I make the correct 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 unhealthy by its personal requirements, particularly given the latest volatility. But it surely 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 yr, displaying what a correct telecoms turnaround can appear 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 indicators
The group’s 2024 outcomes, revealed on 20 Might, painted a blended image. Whole 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 assist the share value within the brief time period.
CEO Margherita Della Valle insisted Vodafone has “modified”, however I nonetheless must see extra proof
Watch and wait
Telecoms stays a tough sector. It calls for heavy funding and provides little room for error. Vodafone’s internet debt stays stubbornly excessive at €33.9bn. The turnaround story is actual, nevertheless it’s not but full.
Analyst sentiment displays the uncertainty. Of the 15 providing inventory rankings, 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 immediately’s value. Mixed with the yield, which may supply a 15% return. That might be an excellent yr by Vodafone’s requirements. We’ll see.
In a single respect, the shares we don’t purchase are simply as vital as those that have been. So it’s value wanting again, occasionally. Hopefully, not with anger.
For now, I nonetheless see higher locations to speculate. Others may think about shopping for Vodafone, however I’m conserving my bargepole useful.
