ii view: recovery stock Vodafone increasingly a play on Germany

Full-year results to 31 March 

• Revenue down 2.5% to €36.7 billion
• Adjusted organic service revenues up 6.3% to €29.9 billion
• Adjusted organic profit (EBITDA) up 2.2% to €11 billion
• Net debt flat at €33.2 billion
• Final dividend of 4.5 eurocents per share
• Total dividend for the year unchanged at 9 eurocents per share

Guidance:

• Expects 2025 adjusted profit of €11 billion and adjusted free cash flow to be at least €2.4 billion
• Targeting a dividend of 4.5 eurocents per share for the year ahead, with ambition to grow it over time
• Planning share buybacks of up to €2 billion using proceeds from Spanish business sale
• Targeting further share buybacks of up to €2 billion following completion of Italian business sale - expected in the first half 

Chief executive Margherita Della Valle said:   

“A year ago, I set out my plans to transform Vodafone, including the need to right-size Europe for growth. Since then, we have announced a series of transactions and we are now delivering growth in all of our markets across Europe and Africa.”

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ii round-up:

Vodafone Group (LSE:VOD) operates both mobile phone and fixed broadband networks.

Operating in Europe and Africa and following business sales in Spain and Italy, key countries of operation now include Germany, the UK, Turkey, and South Africa. 

For a round-up of these latest results announced on 14 May, please click here. 

ii view:

Conducting the first mobile phone call ever in the UK in 1985, Vodafone today provides mobile and fixed line broadband services to over 300 million customers in 15 different countries following business sales. Germany continues to generate its biggest chunk of adjusted profit at 46%, with the UK at 13%, other European countries combined and including Portugal and Ireland, 14%, Africa 22%, and Turkey 5%. 

Having completed its business right-sizing, management is now focused on increasing investment in customer experience, improving performance of its major Germany market, and growing its business-related sales as its looks to support public sector and corporate customers in their transition to the Cloud and generative AI.

For investors, a 6% fall in German profits in 2023, impacted by law changes to fixed line or cable TV and multi dwellings, gives room for improvement. The proposed merger of Vodafone’s UK phone operations with those of CK Hutchison’s Three UK operations is subject to an in-depth competition probe. Meanwhile, costs such as those for energy and wages remain elevated, the sale of its Italian and Spanish businesses leaves it less geographically diverse, while group net debt of €33.2 billion (£28 billion) compares to a stock market value of £20 billion.

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More favourably, group-wide service revenues adjusted for disposals rose 6.3%, including a 0.2% annual gain for Germany. A transformation programme continues with a structural divisional reorganisation having been made to better execute on strategic priorities. A strong focus on costs persists, while UAE telecommunications company e& continues to hold a sizeable shareholding in Vodafone, potentially applying further pressure on management for change and improvement.

In all, the many transformation programmes undertaken by Vodafone and a 43% fall in the share price over the last five years offer clear room for caution. However, significant business sales recently now leave cash for supportive share buybacks, while a forecast dividend yield of over 5%, despite another rebasing, will likely still appeal to many investors willing to invest in what remains a risky turnaround play. 

Positives

• Business and geographical diversity
• Ongoing management transformation programme

Negatives

• Intense competition
• Pending cut to the dividend payment

The average rating of stock market analysts:

Strong hold