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VOD Vodafone Group Plc

-0.28 (-0.40%)
24 Apr 2024 - Closed
Delayed by 15 minutes
Vodafone Investors - VOD

Vodafone Investors - VOD

Share Name Share Symbol Market Stock Type
Vodafone Group Plc VOD London Ordinary Share
  Price Change Price Change % Share Price Last Trade
-0.28 -0.40% 69.34 16:35:25
Open Price Low Price High Price Close Price Previous Close
69.68 68.68 70.06 69.34 69.62
more quote information »
Industry Sector

Top Investor Posts

Top Posts
Posted at 19/3/2024 17:50 by davius
Stockwatch: is it time to buy Vodafone shares?

Vodafone’s finances can look worrying, but analyst Edmond Jackson likes the investment case and believes this director’s share buying is too big to ignore.

19th March 2024 12:26

by Edmond Jackson from interactive investor

Share trading by a chief financial officer (CFO) can be the most pertinent to watch given they are closest to company finances, and not being as well paid as a CEO, may mean exercising greater care.

Many director dealings announcements nowadays involve non-executive directors given executives have substantial share option schemes, although such purchases can be to comply with contractual obligations that they hold a certain amount of shares rather than a reaction to value offered.

So it is an eye-popper how Luka Mucic, the CFO of Vodafone, has spent over £1.7 million on shares in the company at 69.6p. It is the biggest share purchase by a CFO I have ever seen. For context, page 191 of the 2022 annual report cites £7 million total annual director remuneration by way of salaries and incentive schemes. It would have been far better to show what each director gets by way of remuneration elements, but still implies he could have staked at least three years of his after-tax income in this deal.

In most situations, such a buy would have electrified interest, but it is a reflection of current jaundice towards telecom stocks, how Vodafone Group slipped nearly 4% yesterday to close at 67.6p. Indeed, BT Group fell the exact same amount to 105p. In early dealings today, the erosion continued.

It raises stark questions about pricing of FTSE 100 stocks which you would assume is reasonably efficient. Yet the market is trending opposite to what a CFO implies, screaming value. In one of his annual reports, Warren Buffett has written words to the effect: “A stock that is large and widely followed can be the more irrationally valued.”

Is market right or wrong with Vodafone shares near all-time low?
Its current level is just above the 63p multi-decade low seen just a month or so ago, albeit well down on highs of over 200p in 2014 to 2017. You could regard the chart as potentially in the early stage of building a support level, but this is not in place and a bullish “bowl” formation would be some way off, for what chart folklore is worth.

If consensus forecasts are at all credible, the dividend yield is currently just over 11% based on a payout of 9 euro cents for the year ended 31 March 2024, and about 5.7% based on the planned halving of the dividend for the current financial year.

In principle, this not only looks a highly attractive yield but, if by any means realistic, implies the stock also at some point will rise. In practice, it flags perception of high financial risks and many investors have been attracted to Vodafone’s yield, then suffered paper losses.

Last November’s interim results to 30 September portrayed a declining dynamic with a 4% reduction in revenue but 44% drop in operating profit to €1.7 billion (£1.4 billion) - classic “operational gearing”. Higher interest rates on €58 billion of net debt then whittled pre-tax profit down by 67% to €550 million and to a net loss after a €705 million tax charge. The only positive being that tax authorities have taken a higher view of profit.

An uneasy income statement continued into the cash flow profile, where investment took €3.8 billion of €5.5 billion generated from operations, down 12%. Some €5.5 billion then justifiably went on repaying borrowings, €1.1 billion on interest and nearly €1.4 billion on various dividends. The total financing outflow was € 6.4 billion and net cash outflow €4.6 billion. So, while the recent dividend policy has been possible, the market has perceived it as not necessarily prudent.

Vodafone - financial summary
Year end 31 Mar

2016 2017 2018 2019 2020 2021 2022 2023
Revenue (€ million) 49,810 47,631 46,571 43,666 44,974 43,809 45,580 45,706
Operating margin (%) 2.7 7.8 9.2 -2.2 9.1 11.7 12.8 31.3
Operating profit (€m) 1,320 3,725 4,299 -951 4,099 5,129 5,813 14,296
Net profit (€m) -5,405 -6,297 2,439 -8,020 -920 59.0 2,237 11,838
Reported EPS (euro cents) -20.3 -7.8 15.8 -16.2 -3.1 0.2 7.7 42.6
Normalised EPS (cents) -18.0 -9.8 16.3 -6.7 -7.9 2.6 8.3 13.0
Ops cashflow/share (cents) 53.7 50.8 48.8 47.0 59.1 58.0 62.1 65.0
Capex/share (cents) 52.0 31.7 29.3 29.5 25.8 29.1 31.1 33.2
Free cashflow/share (cents) 1.7 19.2 19.5 17.5 33.2 28.9 31.0 31.8
Dividend/share (cents) 14.4 14.8 15.1 9.2 8.9 9.2 9.0 8.9
Earnings cover (x) -1.4 -0.5 1.1 -1.8 -0.4 0.0 0.8 4.8
Return on capital (%) 1.0 3.3 4.0 -0.8 3.0 4.1 4.8 11.8
Cash (€m) 18,259 14,955 13,469 26,649 20,646 14,980 15,427 18,722
Net debt (€m) 38,793 31,314 29,512 26,306 54,279 52,780 54,665 47,668
Net asset value (€m) 83,325 72,200 67,640 62,218 61,410 55,804 54,783 63,399
Net asset value/share (cents) 314 271 254 228 229 198 193 235
Source: historic company REFS and company accounts

Yet confirmation on 15 March of the sale of Vodafone Italy to Swisscom for €8 billion upfront cash implies the balancing act stands a fair chance of continuing, versus nearly €2.5 billion going out as dividends – based on the 9 cents per share annual payout - with $4 billion said to be returned to shareholders via buybacks.

Obviously, disposals are no enduring prop, the underlying trajectory of operations is vital. A 5 February trading update in respect of Vodafone’s third quarter to end-2023, cited organic growth of 4.7% despite disposals meaning a slight 1.4% slip in reported revenue. It was reassuring how 14 out of 17 markets were said to be growing.

Nods to modernisation were made by way of Cloud and Internet of Things services growing over 20%, probably small in an overall context. “We’ve also begun strategic partnerships with Microsoft and Accenture to fast-track our transformation,̶1; it said.

Germany edged slightly better, with both reported and organic growth up 0.3% to near €2.9 billion. Yet there appears unease in the market about how this division constitutes a quarter of group revenue and its chief executive of two years is being replaced. Frets also exist about whether a merger with Three in the UK will pass regulatory scrutiny.

The shares do however look to price in much of this distress. If consensus for around €2.0 billion net profit in the current year to 31 March is fair, the forward price/earnings (PE) ratio is around 9x, although it’s unclear quite how realistic is the €2.4 billion profit targeted for March 2025.

With 75% of €61.6 billion net assets constituting goodwill/intangibles, €15.2 billion net tangible assets imply 48p a share – assets ultimately being worth what they can earn.

Significant uncertainty is involved here but my sense is that the CFO thinks this works more in his favour – to grasp substantial Vodafone equity at its current price, despite its "falling knife" semblance.

If fundamentals were deteriorating to an extent that it leaves equity value exposed, hedge funds would be over Vodafone like a rash. But you have to go back to 2022 to find any. Marshall Wace, which I tend to regard as a benchmark for well-judged short-selling, went below 0.5% exposure in autumn 2021. Who knows if it is still short?

BT, by comparison, has nearly 2.6% of its share capital out on loan, with AKO Capital having edged over 0.9% on 7 March, while the Canada Pension Plan Investment Board stayed flat at 0.5% and BlackRock, also Kintbury Capital, trimmed theirs slightly below 0.6%. Those are still substantial shorts for a £10 billion company and, as of last September, none were disclosed. To an extent they will be taking a view on telecoms besides BT specifically.

For me, the sheer scale of this director buying – and it being the CFO – tilts me towards a sense that the shares have fallen to a level where risk/reward has become attractive. Sentiment is too dire versus Vodafone’s underlying dynamic.

Obviously, most of us do not have the income base of senior telecoms bosses should things not turn out as hoped. But this trade looks an indicator to consider averaging in. Buy.
Posted at 15/3/2024 10:01 by jrphoenixw2
TheImperialist/#3100: 'Who is buying? The institutions, the dividend investors, [etc]

A dividend investor requires bullet-proof payments; it might form part of the core household income. VOD have just chopped the dividend in *half*. Why would a dividend investor touch it for years to come, until it's re-established itself as a reliable and growing payer off a solid balance sheet.
Posted at 14/3/2024 20:04 by justiceforthemany
Has anyone bothered to write to the stupid CEO or Investor Relations?
Dividend cut scaring off investors? Would still yield 6-7% at this share price
FT betaville have gone down in my estimation, spouting BS about a takeover!

Posted at 02/3/2024 01:59 by kiwi2007
I don't think there's anything happening especially, just that the market is spotting value;

is a stock many investors are watching right now. VOD is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with P/E ratio of 10.20 right now. For comparison, its industry sports an average P/E of 10.46. Over the last 12 months, VOD's Forward P/E has been as high as 12.20 and as low as 9.02, with a median of 10.03.

Another notable valuation metric for VOD is its P/B ratio of 0.35. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 1.03. Over the past year, VOD's P/B has been as high as 0.57 and as low as 0.33, with a median of 0.38.

Value investors will likely look at more than just these metrics, but the above data helps show that Vodafone Group is likely undervalued currently. And when considering the strength of its earnings outlook, VOD sticks out at as one of the market's strongest value stocks.
Posted at 15/11/2023 08:54 by davius
ii view:

Vodafone is a major mobile phone and fixed broadband data network provider. It has over 300 million customers across 17 countries, along with mobile phone network partnerships in a further 40 plus countries. Germany generates its biggest slice of service revenues at 31%, with the UK and Italy coming in at 15% and 11% respectively. Its Africa focused Vodacom business, including South Africa and Egypt, is another major sales generator at 16% of service revenues, with other markets including Turkey at 4%.

For investors, the tough economic backdrop for its customers including heightened borrowing costs cannot be ignored, while group costs such as energy remain elevated. Competition in markets such as Italy is intense and, while net debt of €36.24 billion (£31.5 billion) is down, it compares to a stock market value nearer £20.5 billion. Meanwhile, adjusted earnings of 11.45 eurocents in its last full financial year only just covered its full year dividend payment of 9 eurocents per share.

More favourably, a transformation programme is being pushed including cost cuts via staff reductions. Vodafone is also diverse in terms of business type and geography, energy costs for industry more broadly have recently reduced, while UAE telecommunications company e& continues to hold a significant stake in Vodafone, raising speculative hopes and potentially applying further pressure on management for change.

While a lack of profit growth may for now deter new investors, some might decide to back a recovery under the new CEO. A forecast dividend yield of over 9% might also keep income investors interested.


Business and geographical diversity
Attractive dividend payment (not guaranteed)

Uncertain economic outlook
Currency headwinds
The average rating of stock market analysts:

Strong hold
Posted at 24/10/2023 18:17 by davius
Big upside seen for this fallen FTSE 100 giant

Vodafone shares continue to struggle, but for one City bank there’s reason for optimism after calling a big upturn for the high-yielding stock.

24th October 2023 13:29

by Graeme Evans from interactive investor

The “prodigious221; valuation gap between Vodafone Group and its peers has been backed to close after a City bank said improving trends justified a new 165p target price.

The optimism at Deutsche Bank comes with Vodafone shares languishing in the 70p-80p range after another summer of frustration for long-suffering investors.

The bank believes that Vodafone's run of “unfortunate” events is nearing its end, with positive ones taking their place. It notes the drag from energy prices should normalise and then reverse by 2025, with emerging market currency pressures showing signs of easing.

The jettisoning of weaker assets, possibly including operations in Spain, and prospect of consolidation in the UK after this year’s Three merger deal should also benefit the top line.

Deutsche Bank said: “Vodafone is becoming easier to break out into its parts, revealing a prodigious under-valuation versus peers, which admittedly have less cable.”

The bank, which lifted its price target by 10p in today’s note, adds that disposals of weaker assets would do much to highlight this anomaly but only if proceeds are used diligently to boost dividend cover and free cash flow.

Other analysts are more cautious on prospects as JPMorgan yesterday trimmed its price target to 92p, with Barclays recently highlighting a figure of 95p.

Shares are down by around 40% since last summer as competition intensifies, leaving the London market’s one-time largest stock trading at its lowest level in 25 years.

The selling has continued even though new boss Margherita Della Valle has vowed to accelerate change, including by simplifying the organisation, cutting out complexity and taking steps to regain the company’s competitive standing.

The turnaround potential of a former FTSE 100 giant has tempted plenty of retail investors, with shares among the five most-bought on our platform in the third quarter of 2023.

New buyers have been attracted by a dividend yield now above 10%, although such a lofty level comes with a health warning over the potential for the payout to be cut.

The total dividend was an unchanged nine euro cents a share in May’s annual results, only just covered by earnings of 11.45 euro cents for the year to 31 March.

The next landmark for Vodafone investors will be half-year results on 14 November, when the City will be looking for updates on M&A activity and signs that operational trends are improving. The largest unit of Germany, which accounts for 30% of revenues, will be a particular focus after recent price rises.

Deutsche Bank is forecasting service revenues growth across the group will improve to 2.2% in the second quarter from 1.8% in the opening three months of the financial year.

This summer’s deal with the owner of Three, which is subject to regulatory approval, will combine the third and fourth-largest network operators in the UK in a move that creates the scale needed to invest in network and 5G expansion.
Posted at 26/7/2023 22:10 by davius
Vodafone shares hit six-week high after Q1 results

There should be enough going on at the mobile phone giant to generate interest in its underperforming shares, but the company has a mountain to climb. Our head of markets analyses its position.

The announcement of a mega-merger and fresh blood in the boardroom would normally be enough to light a fire under a share price, but Vodafone Group investors are taking an understandable wait and see approach.

The merger with Three UK is expected to close by the end of next year and is subject to regulatory approval, which could yet prove to be more of a hurdle than Vodafone is suggesting. If passed, however, expected annual cost savings of £700 million by year five clearly underline the attraction of the deal, notwithstanding the likely £500 million of integration costs leading up to that point.

In the meantime, the group is well aware that it has a mountain to climb. Higher energy costs in the background have not helped, while a deteriorating performance in Germany, which accounts for around 26% of revenues, has been seen amid intense competition and new legislation in the pipeline.

The decline in revenues of 1.3% for the last three months is an improvement from the 2.8% drop reported in the previous quarter and was largely driven by price increases in the broadband service, although this has inevitably come at the cost of losing some cost-conscious customers.

Elsewhere in Europe, performance has been mixed, with similar pressures to the German experience weighing in markets such as Spain and Italy. The UK fared rather better, reporting a service revenue increase of 5.7% compared to 3.8% the previous quarter, while 42,000 broadband customers were added, taking the existing total of customers to 1.3 million.

From a group perspective, a reported revenue decline of 4.8% in the first quarter masked organic growth of 3.7%, where the African business continues to make a notable contribution. Vodacom revenues grew by 9% over the quarter from a previous 7%, with South Africa and Egypt being beacons of light. Indeed, there are some exciting growth opportunities in Africa (it now has 73.5 million financial services customers) and more broadly its multi-play offering (TV, broadband, fixed line) often results in “stickier̶1; customers when they have chosen the bundle.

Guidance for the year is unchanged and the accompanying management comments recognise the scale of the challenges to come, while the performance of the Business segment and certain geographical regions provide some grounds for optimism.

In the meantime, net debt remains something of a concern to investors, although the group is reportedly comfortable with the current levels. The dividend yield of 10.6%, partly the result of a declining share price, is of scant solace to long-suffering investors, even if the yield of itself is extremely punchy.

The shares have reacted positively at the market open on Monday to the glimmers of hope which have been reported, but there remains a significant amount of ground to make up.

Over the last year, the shares have dropped by 43%, as compared to a gain of 5.3% for the wider FTSE100 index, while over the last five years the price has plunged by 59%. Investors will be hoping that the positive noises emanating from the group prove to be the thin end of the wedge, but in the meantime the jury remains out, with the market consensus of the shares as a 'hold' likely to remain intact.
Posted at 06/12/2022 18:49 by vodman1
CEO Turmoil Leaves FTSE a Target for Opportunistic Predators
Sabah Meddings and Dinesh Nair, Bloomberg News

Nick Read, chief executive officer of Vodafone Group Plc, during an interview at their offices in London, UK, on Friday, May 20, 2022. Three-and-a-half years into his tenure as CEO, with activist investors and hedge funds on alert, 57-year-old Read deflects media reports of “pressure̶1; and doesn’t actually admit to making any big mistakes himself: David Levenson/Bloomberg
Nick Read, chief executive officer of Vodafone Group Plc, during an interview at their offices in London, UK, on Friday, May 20, 2022. Three-and-a-half years into his tenure as CEO, with activist investors and hedge funds on alert, 57-year-old Read deflects media reports of “pressure̶1; and doesn’t actually admit to making any big mistakes himself: David Levenson/Bloomberg , Bloomberg

(Bloomberg) --

Turmoil at the top of UK Plc -- with Vodafone Group, Unilever, Reckitt Benckiser Group and others simultaneously hunting for new chief executive officers -- has prompted fears that Britain’s largest companies may become vulnerable to activist investors and opportunistic takeovers.

On Monday, Vodafone’s Nick Read became the 23rd CEO of a company in the FTSE 100 stock index to announce their departure this year, following executive changes at companies including Shell Plc, Rolls-Royce Plc and M&G Plc.

The high level of boardroom churn has led some investors in the City of London to predict that changes at the top could cripple the ability of companies to press the button on transformational acquisitions, or make them a target.

Uncertainty around leadership raises questions about companies’ strategic direction and is “always going to make them more vulnerable,” said Ben Ritchie, head of UK and European equities at fund manager Abrdn Plc. “It’s inevitable.”

AJ Bell, which has been tracking the changes, noted that Read had served only 4.25 years at Vodafone, compared with the FTSE 100 average of 5.8 years. Even before 2023 has begun, Read is the 10th CEO to have announced a departure set for next year, after 12 exits in 2022. The post-2000 average is 12.5 a year, according to AJ Bell.

Activist Investors

Some exits have been driven by the company, or by activist investors. Read’s departure from Vodafone followed a turbulent year in which the company’s share price fell sharply and management faced criticism from shareholders. A vehicle backed by French billionaire Xavier Niel bought 2.5% of Vodafone, raising the prospect that he would shake up the under-performing telecommunications group.

Unilever CEO Alan Jope announced his departure shortly after the arrival of Nelson Peltz, the owner of New York hedge fund Trian, on its board. Peltz, 80, disclosed a 1.5% stake in the company in May.

For others, the chief executive has chosen to jump ship, with the company falling victim to the global war for talent. The lure of a US job, with more lucrative pay, has tempted some executives to leave the UK.

Laxman Narasimhan announced his departure from Nurofen maker Reckitt Benckiser in September, jumping ship to US-based coffee-shop chain Starbucks Corp. after just three years in the role. Narasimhan, who was paid £6 million ($7.3 million) including bonuses and share options in 2021, will receive total compensation of as much as $17.5 million at Starbucks.

Others have been tempted away from the public markets by private equity. Earlier this year Rob Hattrell, the former head of EBay Inc.’s European arm, turned down the chief executive role at fashion retailer Asos in favor of a job at private equity firm TDR, the part-owner of Asda.

UK Valuations

The CEO churn comes at a time when UK company valuations are depressed compared with their peers. Though shares have slumped worldwide since Russia’s invasion of Ukraine, UK boards are increasingly complaining of a conservative investor base that favors stable yield-paying stocks over innovative, faster-growing technology firms.

One FTSE 100 chairman, quoted in a recent report on stewardship by the public relations agency Tulchan, said the UK market “struggles to understand what a tech stock does.” “The bias of the UK investor base means it would probably be better for a tech company to be listed somewhere else,” they said.

Another chair, quoted in the report, said it was becoming “difficult and more so to recruit CEOs and chairs to London-listed boards.” “It’s not just the pay but also the scrutiny and second-guessing,R21; they said. “Most CEOs after being CEO to a public company look to go into private roles where there is more freedom to implement and deliberate strategy over a long period of time and where the frustrations are fewer.”

Focusing on dividends and shareholder returns may be the safe option, but eschewing transformational deals and other riskier strategies can open CEOs up to criticism from activist investors who swoop in, seeking faster change.

Sharon Sands, a partner at executive search firm Heidrick & Struggles’ London office, said that market volatility and economic uncertainty may be a factor in the level of chief executive churn. She said it was important to acknowledge that the “weight of the role is heavy.”

“Expectations of CEOs have broadened and deepened,” Sands said.

Depressed valuations and the threat of activist pressure have also left boards fighting to prove to shareholders that they are taking action.

Fran Minogue, managing partner of Clarity Search, said there was likely to be more change into the New Year for those companies whose shareholders are looking for growth and “want to be seen by their shareholders to be doing something.”

She said that post-Covid, boards were asking whether employees are “stepping up, is change being driven fast enough, are transformation programs going well?”

--With assistance from Swetha Gopinath and Loukia Gyftopoulou.

©2022 Bloomberg L.P.
Posted at 21/11/2022 18:43 by vodman1
Vodafone: Empire Building Gone Wrong
Nov. 20, 2022 9:19 PM ETVodafone Group Public Limited Company (VOD), VODPF4 Comments

Vodafone is one of the largest Pan-European telecommunications giants, whose empire spans 22 countries and three continents.
The British-based company has had another difficult year in the markets and lost a quarter of its market cap since the offset of the year.
This has led to an interesting valuation, with VOD currently being sold for an NTM EV/EBITDA of 6.44x, NTM P/E of 10.44x, and an NTM P/FCF of 6.44x.
We attempt to dissect if we are dealing with an enticing value trap or a truly attractive and immersive investment opportunity.

Vodafone headquarters, in Bucharest, Romania.


At face value, defensive-oriented stocks such as telecommunication companies that were in a position to offer immediate access to shareholder returns in the form of lucrative dividends should have been able to perform well this year during the market downturn. However, the oligopoly-like market conditions combined with the potent cash flows the companies were generating allowed them to become significantly more levered up than what would usually be considered acceptable. The rising interest rate environment, accompanied by increased capital expenditures dedicated to building up the 5G infrastructure, as well as the fact that the risk-free rates started slowly creeping up to the dividend yields the telecoms were offering started draining equity out of telecoms this year at an alarming pace.

This process hit telecommunication companies across the globe, and Vodafone (NASDAQ:VOD) was no exception, with the British-based telecommunication giant losing more than a quarter of its market capitalization since the offset of the year, once more leading to disappointing results for investors. This has led to an interesting valuation, with the company currently being sold for an NTM EV/EBITDA of 6.44x, NTM P/E of 10.44x, and an NTM P/FCF of 6.44x, while offering an attractive dividend yield of 7.97%. Today, we attempt to analyze the situation and attempt to dissect if we are dealing with a classic value trap or a possibly truly attractive and immersive investment opportunity.

Vodafone vs S&P500 YTD Returns as per SA

Vodafone vs S&P500 YTD Returns (Seeking Alpha)

Overview of the company

Vodafone Group represents one of the leading telecommunications services providers in Europe, as well as one of the largest communications providers in the world, as measured by both customer base and generated revenues. The group offers its fixed-line and mobile communication services to more than 650 million customers in 21 countries across three continents. Being founded all the way back in 1984 in the United Kingdom, the company has since evolved to become a true Pan-European telecommunications giant. Vodafone ended last year with €45.58 billion in revenues while generating Adj. EBITDA of €15.20 billion, as well as €5.43 in Adj. Free Cash Flow.
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The U.K.-based company provides a broad range of traditional services offered through mobile communications, including call, text, and data access, as well as fixed-line services, including broadband, television, and voice. Beyond its traditional portfolio offering, Vodafone also engages in products such as the Internet of Things, comprising managed IoT connectivity, automotive, and insurance services; cloud and security portfolio comprising public and private cloud services, as well as cloud-based applications and products for securing networks and devices; and international voice, IP transit, and messaging services to support business customers that include small home offices and large multi-national companies.

Vodafone Group Holding Structure as per Vodafone Group Holding Structure

Vodafone Group Holding Structure (Investor Relations Presentation)

The telecom empire Vodafone has managed to build throughout the decades expanded way beyond only premium and high-end markets such as Germany and the United Kingdom, through distressed markets such as Turkey, to major growth markets such as Africa.

Regional Footprint of Vodafone as per Investor Presentation FY '22

Regional Footprint (Investor Presentation FY '22)

When analyzing telecommunication companies around the world, there usually comes a point where we would have to discuss the debt levels of the company, which are usually quite high, and that remains the case with Vodafone as well. The company struggled with leverage for a long time. As of the half-year results, the company was carrying a significant amount of debt totaling €53.78 billion in gross debt, and €45.52 billion in net debt. The net debt position increased by €3.94 million to €45.52 million when compared to the FY 2022 results. Using its definition of Adjusted EBITDAaL, Vodafone has a net leverage ratio of 3.53x and a gross leverage ratio of 2.99x.

Financial Results as perH1 FY '23 as per

Financial Results (H1 FY '23 Release)

The company holds a borderline respectable credit rating. Currently, it received an investment-grade rating from all three major credit rating agencies. It carries a Baa2, BBB, and BBB credit rating from Standard & Poor's, Fitch, and Moody's, respectively.

Credit Ratings as per Vodafone Investor Relations

Credit Ratings (Vodafone Investor Relations)

The main form of generating shareholder value for Vodafone was its lucrative dividend program. All things considered, Vodafone Group is operating a very lucrative dividend policy within the current market environment. Between the London-traded shares selling at around £0.99 and the ADR shares selling at around $11.69, the current dividend yield is roughly 7.97%.

Dividend growth has definitely not been a strong point when it comes to Vodafone, as the company was forced to cut its dividends twice over the past decade in order to ensure the stability of its balance sheet. The currently committed dividend distribution is about half of what the distribution was almost a decade ago. Currently, the company is paying out €0.09 on a semi-annual basis, through its equal €0.045 interim and final dividends. That leads us to the question of dividend safety. The company should not in theory be struggling to keep up with its current dividend policy, which costs slightly more than €2.3 billion each year. As a reminder, Vodafone generated €5.43 in Adj. Free Cash Flow last year. Latest developments indicate it's likely that FCF is going to come under pressure, which led to some analysts even raising the question of a possible dividend cut, but that seems rather unlikely from our point of view.

Dividend Distribution History as per Vodafone

Dividend Distribution History (Author Spreadsheet - VOD Data)

Management has reaffirmed its commitment to the €0.09/year dividend policy, but their stance on the issue sends a clear message dividend growth is likely out of the question for the short-mid term.

Yes. So maybe just to frame how the Board would think about the dividend, we have a minimum commitment of EUR 0.09. That was part of our midterm ambition. We have been prioritizing deleveraging. We have gone past the peak of 5G spectrum and Liberty integration, so that will support free cash flow. We are doing a number of portfolio actions that will materialize synergy benefits, et cetera, if we complete everything that we want to complete. Clearly, in the near term, we have an energy hit, but we have to look through that. And when we look through it and, let's say, the exceptional inflation, and we have the balance sheet effectively to absorb that, if we look through it, management still remains on the ambition of the midterm growth. So we see the dividend intrinsically linked to that profile.

Nicholas Read, CEO - Q2 2023 Earnings Call

Even though the company has engaged in some significant buy-back programs in the past, the results were mostly aimed at offsetting the share dilution originating from convertible bonds. As a result, the somewhat depressing valuation wasn't capitalized on by management, whose almost sole focus is still placed on the efforts to deleverage the balance sheet.

Diluted Shares Outstanding as per IQ capital data

Shares Outstanding (TIKR Terminal - IQ Capital Data)

When asked about it during the latest earnings call, management avoided providing a direct answer. Last year alone, the company dedicated €2 billion toward share buy-backs and more than €10 billion over the past decade, but the overall results in this aspect lacked.

On capital allocation, as you mentioned, we have always indicated that our near-term priority would be deleveraging. And I think this is proving the right approach in the current macroeconomic conditions, so you should expect us initially to allocate the proceedings towards further strengthening our balance sheet. But we will form a full view on this once the transaction will have completed, and the final proceedings will be set.

Margherita Della Valle, CFO - Q2 2023 Earnings Call

Valuing the telecom

While it does remain true that Vodafone is trading at relatively attractive multiples that do signal a possible value opportunity, the depressed multiples also serve to embody the level of investor disappointment Vodafone has garnered throughout the years.

In this context, the sheer amount of equity erosion that has taken place is being actively priced into the company stock by investors. Over the past decade, Vodafone generated a negative 32.55% return. For the same time period, the average passive index investor managed to almost triple his principal, even after the stark market (SPY) decline this year. This obviously does not take into account the dividends that were distributed over the period, such as the £1.02 major dividend after the company sold its Verizon (VZ) stake, but does speak toward the sentiment surrounding the company.

Vodafone and S&P500 10-year returns as per SA

Vodafone and S&P500 10-year returns (Seeking Alpha)

With that being said, we are not attempting to value Vodafone back in 2012, but the company that it represents today. As of today, British-based telecom does seem to be positioning itself well to be able to deliver above-market returns over the upcoming period. Currently, the market is valuing the company for an NTM EV/EBITDA of 6.44x, NTM P/E of 10.44x, and an NTM P/FCF of 6.44x, as it offers an attractive dividend yield of 7.97%.

Vodafone and Industry Peers

Vodafone and Industry Peers (TIKR Terminal - IQ Capital Data)

Closing thoughts and arguments

Strictly, fundamentally speaking, it is somewhat hard not to conclude that Vodafone represents an attractive investment opportunity from a value investor's perspective. We can certainly recognize value hidden behind depressed multiples that could unlock along the way, indicating a material upside potential, but in our view, catalysts for such an upside action are too far between. The main issue we encounter with Vodafone's current valuation is that the company is trading relatively in line with its US-based counterparts such as AT&T (T) and Verizon, which possibly remains somewhat unwarranted in our view. Ultimately, Vodafone does offer a higher dividend yield accompanied by some strong upside potential if one is willing to accept the inherent risks associated with the investment, but we remain unconvinced if the European telecom is a place in which, given the market conditions, one would be willing to take on such risks.

The bottom line is that we fail to recognize why the average income investor would opt to invest in the British-based telecom instead of the already discounted American counterparts. However, for some international income investors, Vodafone could make a lot of sense given the right circumstances. The slightly higher yield combined with the more lenient approach to the question of dividend withholding taxes from His Majesty's Treasury would make for a compelling argument. Further to the point, we also fail to see a likely scenario where Vodafone's valuation gets further depressed and opens the floodgates to an even more accelerated erosion of equity, or a noticeable decrease in distributed dividends compared to its foreseeable cash generation potency, making the company far from the worst investment opportunity for international income-oriented investors.
Posted at 17/10/2022 18:28 by vodman1
Europe’s largest activist investor Cevian Capital has slashed its stake in Vodafone as scepticism grows that the UK-based telecoms group will be able to reverse its sluggish performance amid a challenging economic backdrop.

Cevian built a significant but undisclosed position in the FTSE 100 group last year through shares and derivatives, becoming one of the 10 largest shareholders according to people familiar with the matter. It was pushing for management to simplify the group’s sprawling international portfolio and sell poorly performing divisions.

However the activist investor sold the vast majority of its stake by the end of June, the people said, due to changes in the economic environment including indications that interest rates would rise, reducing the chances Vodafone would be able to secure favourable deals.

Vodafone has shed nearly 25 per cent of its value since then.

The group is looking at a series of deals across Europe but other investors have expressed impatience over the pace of change and prospects of its flagging share price being revived.

“Would management change be taken well? I think it would,” said one top 15 investor adding that chief executive Nick Read, who joined Vodafone in 2001 and took the top job in 2018, has “been there for a long time . . . and he has not transformed the business”.

Peter Schoenfeld, another shareholder and founder of New York-based hedge fund PSAM, said investors are “frustrated and fed up with Vodafone’s poor stock performance” and that “it’s very much a show me kind of situation now”.

“Read has committed to a strategy that he has so far failed to fulfil,” he added.

Short positions in the company — used by investors to bet that the share price will go down — peaked in May, with 10 per cent of the stock out on loan, according to S&P Global Market Intelligence. This has since dropped below 2 per cent.

But others are still betting the stock will rise. French telecoms billionaire Xavier Niel has built a 2.5 per cent stake in the group and is angling for a shake up.

Recent activity suggests Read is making good on his ambition to pursue deals. In August, Vodafone agreed to sell its Hungarian business for $1.8bn and earlier this month confirmed it was in advanced talks with CK Hutchison, owner of Three, to combine their UK businesses and create the biggest mobile operator in Britain. It also announced a deal to buy MasMovil’s telecoms assets in Portugal, and hired bankers to help look at selling its broadband business in Spain.

However Vodafone’s share price has fallen around 10 per cent over the past month, and 50 per cent over the past five years, to 100p.

Several investors have misgivings about whether the UK joint venture being proposed — with Vodafone as 51 per cent shareholder — would be given the green light by regulators, and if it is liable to create an even more convoluted business.

“We started off the year thinking regulators are more open to [deals], but that’s yet to be seen,” said the top 15 investor.

Some investors and analysts also expressed concern about the level of net debt on the UK group’s balance sheet — at £42bn — given rising interest rates.

“Vodafone tells us it’s all hedged and termed out but . . . hedges don’t always work as we think they will,” said the top 15 investor, who has also reduced their holding in recent months. “They’re trying to do some of the right things with consolidation but with that amount of debt . . . they can’t afford an [earnings] squeeze.”

Another source of frustration is a long-awaited decision over Vodafone’s 80 per cent stake in its Vantage Towers masts business, which would help reduce debt.

Read explored a merger with either Deutsche Telekom or Orange but is now reverting to the idea of selling a stake to private equity. The delay has angered some.

“It’s a statement of fact that they would have got a much better price for these assets a year or 18 months ago,” said the top 15 investor.

Vodafone said in a statement that “the macroeconomic backdrop is challenging for everyone. We continue to progress opportunities with Vantage Towers, strengthen our market positions in Europe, and prioritise the deleveraging of our balance sheet.” It declined to comment on Cevian reducing its stake.

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