Picture supply: Vodafone Group plc
The Vodafone (LSE:VOD) share worth soared over 7% yesterday (20 Could) following the discharge of the group’s outcomes for the yr ended 31 March 2025 (FY25). However after a day of reflection, I nonetheless don’t get it.
All year long, the corporate’s administrators have been telling buyers that adjusted EBITDAaL (earnings earlier than curiosity, tax, depreciation and amortisation, after leases) could be €11bn. They usually have been proper. The ‘enterprise as typical’ announcement makes the share worth motion a little bit of a puzzle to me.
Generally, it’s exhausting to imagine that Vodafone was as soon as the FTSE 100’s Most worthy firm. Its fall from grace has been spectacular. Over the previous 5 years alone, its inventory worth is down over 40%.
In distinction to this, Europe’s largest telecoms operator, Deutsche Telekom, seems to go from energy to energy. Since Could 2020, its share worth has risen practically 150%. In 2024, its adjusted EBITDAaL elevated by 7.9% whereas Vodafone’s was flat.
Contrasting performances
And it’s their efficiency in Germany that almost all differentiates the 2 teams.
Contributing 32% of income, the nation is Vodafone’s largest market. For Deutsche Telekom, it ranks second and accounts for 22% of web income. Impressively, the group’s simply recorded its thirty fourth consecutive quarter of EBITDAaL development within the territory.
However Vodafone’s been badly affected by the change in legislation limiting the bundling of tv contracts in multi-dwelling items. Evaluating FY25 with FY24, income fell 6%, adjusted EBITDAaL was 12.6% decrease and its margin tanked 2.7 proportion factors.
The outlook’s additionally gloomy.
Vodafone’s written down the worth of its German enterprise by €4.35bn. This isn’t a money merchandise nevertheless it displays “administration’s newest evaluation of seemingly buying and selling and financial circumstances within the five-year marketing strategy”.
Falling debt
Nonetheless, one space the place Vodafone has made progress is in lowering its gearing.
At 31 March, web debt had fallen to €22.4bn. Over the course of the yr, that’s a €10.8bn discount. This has been achieved by utilizing the proceeds from the sale of many non-core property and divisions. Though spectacular, it should be remembered that the group’s grow to be quite a bit smaller.
However its indebtedness is now equal to 2 instances FY25 adjusted EBITDAaL. Deutsche Telekom’s is 2.6 instances.
Maybe buyers will cease utilizing debt as a stick to which to beat Vodafone? With Germany performing poorly and its return on capital unchanged, there are different weapons accessible.
Closing ideas
I’ve lengthy argued that Vodafone is undervalued in comparison with its friends. And regardless of the considerations I’ve famous above, its FY25 outcomes haven’t modified my view. However I didn’t see sufficient in yesterday’s announcement to justify the 7% improve within the group’s market cap.
By way of valuation, Deutsche Telekom trades at 14.7 instances its newest full-year post-tax earnings in comparison with 11.5 instances for Vodafone.
In my view, to realize the next valuation, the group must persuade buyers that it may develop its earnings as a FTSE 100 firm ought to. For FY26, it’s forecasting EBITDAaL of €11bn-€11.3bn. Even on the high finish, that’s a really modest improve.
After reflecting on the outcomes, I’m going to carry on to my shares. Exterior Germany, the group’s doing okay. Additionally, the inventory pays an above-average dividend which provides some consolation if the share worth continues to battle.
As for yesterday’s share worth response… I do not know!
