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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 through the years. 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 saved collapsing.
Underneath CEO Margherita Della Valle, appointed in April final yr, issues might lastly be turning. Vodafone is up nearly 15% over 12 months, with many of the acquire coming within the final quarter. It’s now buying and selling round 80p. That’s nonetheless risky, however so is every part in at present’s unsure market.
Revenues up
Full-year outcomes printed on 20 Could hinted at a enterprise discovering its toes. Income rose 2% to €37.4bn, with service income up 5.1%. The massive drivers have 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 movement. 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 only 4.5 cents in 2025. For anybody holding the inventory for earnings, it’s been grim.
The trailing yield remains to be an honest 4.75%, lined 1.7 instances by earnings. Forecasts present the dividend dipping barely to 4.2 cents in 2026, then nudging greater to 4.3 cents the yr 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 remains 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 can even keep excessive. On 2 June, Vodafone UK and Three UK confirmed they’d spend £1.3bn within the first yr of their merger, now branded VodafoneThree. Whereas the tie-up ought to ship £700m in annual price 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.
In line with 14 analyst forecasts, the median one-year Vodafone inventory worth goal is 84.5p. If appropriate, that’s an increase of just below 5%. With the yield, the entire return might 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. So much can go improper.
I’ve averted Vodafone for many years and achieved nicely because of this. For the primary time, I’m tempted. However on stability, I nonetheless don’t assume it’s value contemplating at present. I can see much better development performs throughout the FTSE 100 and FTSE 250, and much more tempting dividend shares.
