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Since April, the Vodafone (LSE:VOD) share value has risen by round a 3rd to 85p (at 9 October). Okay, practically 40 FTSE 100 shares have accomplished higher, however for shareholders like me, that is welcome information.
If it may break via the 100p-barrier by the tip of the yr, it will be a welcome Christmas current. In spite of everything, the final time the inventory was above £1 was in March 2023.
A date for the diary
A key milestone may very well be 11 November. That is when the telecoms group pronounces its half-year outcomes for the six months ended 30 September (H1 26).
Almost a yr in the past, the group’s share value tanked 8.2% after it issued its H1 25 numbers. Buyers have been alarmed by a fall in service income in Germany, its largest market. On 1 July 2024, a brand new legislation got here into impact that meant it was now not doable for landlords to bill tenants for TV contracts as a part of their rents. This stays a significant problem for the group.
This time spherical, I’m hoping for some indicators that the group’s turnaround plan is working. Additionally, shareholders will in all probability obtain an replace on how the VodafoneThree enterprise is performing following the merger in Could. Excellent news and the share value may head north.
However a have a look at the common 12-month share value goal of brokers makes me uncertain. The consensus is that Vodafone’s shares needs to be altering fingers for round 8% lower than they’re in the present day.
A wider concern
I believe a few of this pessimism displays the elemental drawback of the telecoms business. Particularly, that there’s an ever-present requirement for substantial funding, but — largely as a consequence of intense competitors — the returns are decrease than in different sectors.
To handle this, Vodafone’s been promoting off varied belongings and has exited Spain and Italy. A major proportion of the gross sales proceeds has been used to cut back the group’s massive debt burden. The steadiness has helped fund a share buyback programme.
With forecast FY26 earnings per share of 8.47 euro cents (7.35p), the inventory presently trades on a modest 11.5 occasions anticipated earnings. For FY28, this drops to 7.7.
At 30 June, the group’s accounts disclosed a guide worth of €53.9bn (£46.8bn), which is far lower than its present market cap of £20.2bn.
The group’s dividend is fairly good too. It’s prone to declare 4.5 euro cents (3.91p) for FY26. This implies the inventory’s presently yielding 4.6%. However shareholders are nonetheless smarting from the 50% lower in FY25, a reminder that payouts can’t at all times be be relied upon.
Last ideas
To be sincere, I discover Vodafone irritating. I’ve lengthy believed (and nonetheless do) that the group’s present inventory market valuation underestimates its true price. I reckon its shares ought to commerce comfortably above £1 however it would want a powerful set of half-year outcomes (and presumably an earnings improve) if it’s to get there over the following couple of months.
However despite the fact that the brokers seem to disagree with me, I’m not planning on promoting up. I’m hoping that the half-year outcomes will act as a catalyst and provides the group’s share value renewed momentum. Hopefully, we’ll see one thing of a Santa Rally. Affected person buyers on the lookout for an undervalued inventory — that’s additionally paying an above-average dividend — may take into account taking a place.
