Picture supply: Vodafone Group plc
Taking a look at how Vodafone (LSE: VOD) has carried out in recent times on the inventory market, it may be troublesome to get too excited. The Vodafone share worth is up simply 3% over the previous yr. Throughout 5 years, it has misplaced 49% of its worth.
That doesn’t inform the total story on the subject of whole return although.
Whereas the share has carried out poorly, the telecoms big has been a beneficiant dividend payer. Even after halving its dividend per share this yr, Vodafone nonetheless presents a potential yield of 5.5% at its present worth.
The compelling development story is lengthy gone
That dividend minimize is a little bit of a purple flag to me. It was a savage minimize, after the dividend had been held flat for quite a few years, following one other huge minimize.
In different phrases, the share’s monetary efficiency has been going within the fallacious path in comparison with what I search for as an investor.
In the meantime, Vodafone has been promoting off bits of the enterprise. Whereas that may be constructive within the brief time period because it boosts money and might help pay down debt, it additionally makes it tougher to maintain revenue ranges in future.
Each income and post-tax revenue on the firm fell final yr.
I nonetheless see telecoms as an space of development. However Vodafone has been shifting in the wrong way, by slimming down.
In itself although, that doesn’t essentially make the corporate much less engaging to me. Debt discount has helped its stability sheet and focusing in markets the place it has a robust place might develop into a wise strategic alternative over the long run.
I see some attainable worth right here
Certainly, Vodafone’s enterprise efficiency currently has been strong in my opinion.
This yr it expects to generate not less than €2.4bn of free money stream. So the present share worth means Vodafone’s market capitalisation is lower than 9 occasions its anticipated free money stream for the yr.
Asset gross sales helped the agency minimize internet debt to €31.8bn on the midway level of its present monetary yr. That’s nonetheless considerably greater than I wish to see, however it’s a transfer in the appropriate path.
The dividend minimize additionally takes a few of the strain off the corporate’s funds. It has additionally been utilizing some spare money to purchase again its personal shares.
In the meantime, the corporate has an enormous buyer base and a robust model in lots of European and African markets. Demand for cell telephony and knowledge providers will probably stay excessive and cell cash is a development driver, notably in some African markets.
Nonetheless, Vodafone has disillusioned shareholders in recent times (together with me earlier than I bought my holding). Whereas the enterprise does appear to be placing itself on a firmer long-term footing, the stability sheet nonetheless strikes me as a threat given the debt degree.
Though the present Vodafone share worth might develop into a cut price, I additionally don’t see any apparent drivers to push it upwards for the time being. For now, I’ve no plans to take a position.
