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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 over time. 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 stored collapsing.
Underneath CEO Margherita Della Valle, appointed in April final yr, issues could lastly be turning. Vodafone is up virtually 15% over 12 months, with a lot of the achieve coming within the final quarter. It’s now buying and selling round 80p. That’s nonetheless risky, however so is all the things in right this moment’s unsure market.
Revenues up
Full-year outcomes printed on 20 Might 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 the direction of high-growth markets, which produce two-thirds of its adjusted free money circulate. 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 simply 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 occasions by earnings. Forecasts present the dividend dipping barely to 4.2 cents in 2026, then nudging larger 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 mild.
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 a protracted wait.
Return on capital employed is simply 0.6%, which displays years of underperformance.
Based on 14 analyst forecasts, the median one-year Vodafone inventory worth goal is 84.5p. If appropriate, that’s an increase of slightly below 5%. With the yield, the overall return may hit 9.5%. If that performs out, £10,000 would flip into £10,950.
It’s a begin. Nevertheless it’s hardly thrilling. And forecasts are simply that. Rather a lot can go fallacious.
I’ve prevented Vodafone for many years and performed nicely in consequence. For the primary time, I’m tempted. However on steadiness, I nonetheless don’t suppose it’s value contemplating right this moment. I can see much better progress performs throughout the FTSE 100 and FTSE 250, and much more tempting dividend shares.
