Interactive Investor

ii view: Vodafone stays optimistic, but should shareholders be?

7th February 2022 11:37

Keith Bowman from interactive investor

Down by nearly a third over the last five years but currently rallying to a nine-month high. We assess prospects for Vodafone shares. 

Third-quarter results to 31 December

  • Service revenue up 2.7% to €9.65 billion, compared to growth of 2.4% in the prior quarter
  • Total group organic revenue up 3.7% to €11.68 billion
  • Reaffirming Full-year 2022 adjusted profit guidance of between €15.2 to €15.4 billion

Chief executive Nick Read said:

"Our team has delivered another solid quarter, demonstrating the sustainability of our growth strategy and medium-term ambition. This performance keeps us firmly on track to deliver FY22 results in line with the higher guidance we set out in November.

“We remain focused on our operational priorities to strengthen commercial momentum in Germany, accelerate our transformation in Spain and position Vodafone Business to maximise EU recovery funding opportunities. We are also committed to creating value for our shareholders through proactive portfolio actions and continuing to improve returns at pace."

ii round-up:

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

It has fully owned operations in Germany, Italy, the UK, Spain and South Africa, with further joint ventures in markets such as the Netherlands with Liberty Global (NASDAQ:LBTYK) and in Australia with CK Hutchison (SEHK:1)

It has over 300 million mobile customers across Europe and Africa. 

In Africa, it is using its data network to offer mobile financial services via its M-Pesa platform. 

For a round-up of these latest quarterly results, please click here

ii view:

Vodafone has been pursuing renewed strategic priorities since 2018. It previously completed the first phase of its strategy to reshape Vodafone, including selling businesses such as its New Zealand operations and the stock market float of its Vantage Towers (XETRA:VTWR) business in early 2021. The next phase of its strategy focuses on three customer commitments and three enabling strategies. These include having the best connectivity products and services, simplifying and being the most efficient operator and building leading gigabit networks. 

During its last full financial year, Europe generated 77% of overall total revenues, Africa 16% and the rest of the world 7%. Consumer services accounted for 69% of sales, business sales 27% and other services 4%. Geographically, Germany generates its biggest slug of sales at just under 30%, followed by the UK at around 14%, with Italy and Spain also significant markets. 

For investors, changes in German law regarding auto-renewal contracts and placing the emphasis on the customer to opt-in rather than the other way around, could have some impact. Competition in markets such as Italy remains intense and group net debt of over €40 billion leaves room for improvement. 

But recent reports of a shareholding taken by an activist investor and a potential partner tie-up within its troubled Italian market, build on hopes for possible merger and acquisition activity. Previously raised full-year 2022 profit guidance has been reaffirmed and the historic and estimated forward dividend yield stand at over 5.5%. In all, and with the consensus analyst estimate of fair value stood at 170p per share, investors may wish to stay patient.  

Positives

  • Geographical diversity
  • Attractive dividend payment (not guaranteed)

Negatives

  • Intense competition
  • Elevated net debt

The average rating of stock market analysts:

Strong buy

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