ii view: is bad reaction to Vodafone results justified?

Net debt is down and the shares offer a dividend in the region of 6%. Buy, sell or hold? 

Full-year results to 31 March

• Revenue down 2.6% to €43.8 billion
• Profit of €536 million compared to a loss of €455 million in the previous year
• Net debt down 3.6% to €40.5 billion 
• Final dividend per share of 4.5 eurocents
• Total dividend for the year unchanged at 9 eurocents per share

Chief executive Nick Read said:

"I am pleased that we achieved full year results in line with our guidance and we exited the year with accelerating service revenue growth across the business, with a particularly good performance in our largest market, Germany.

“We remain fully focused on driving shareholder returns through deleveraging, improving our return on capital, and a firm commitment to our dividend."

ii round-up:

European and African telecoms company Vodafone (LSE:VOD) operates mobile and fixed networks in 21 countries and partners with mobile networks in 49 more. 

It has over 300 million mobile customers and more than 28 million fixed broadband customers. Its networks also service over 22 million TV customers. 

For a round-up of these latest full-year results, please click here. 

ii view:

In recent years, Vodafone has been pursuing renewed strategic priorities. It has simplified its operations down to Europe and Africa, separated out and listed its Vantage Towers business, helping to reduce debt, and continued the rollout of its next generation mobile and fixed networks. Cross-selling opportunities in Germany via its previous acquisition of Liberty Global’s broadband network have proved a focus, and cost savings continue to be made. The change of direction also involved a previous reduction or rebasing of its dividend payment to give increased financial flexibility. 

Looking forward, management aims to continue its focus on the converged connectivity markets in Europe, and mobile data and payments in Africa. It is also looking to invest in connectivity infrastructure, maintain a robust balance sheet, and support improved shareholder distribution. 

For investors, strong price competition in markets such as Italy, and lower roaming and visitor revenue due to reduced travel during the ongoing pandemic, offer reason for caution. Adjusted profit, or EBITDA, fell across both its key markets of Italy and the UK. But a number of trends, including remote working, increased adoption of cloud technology and digital payments should work in favour of Vodafone and the broader industry. Group debt has been reduced and a historic and forecast dividend yield in the region of 6% remains highly attractive. In all, with pandemic headwinds hopefully reducing and its biggest market Germany growing, income focused investors are likely to remain fans of the stock. 

Positives

• Attractive dividend payment (not guaranteed)
• A return to service revenue growth

Negatives

• Italian adjusted earnings down 12.7%
• Competitive markets

The average rating of stock market analysts:

Strong buy