Vodafone (LSE: VOD) shares have fallen sharply this week so far. The telecoms giant released its full-year results on Tuesday. And investors weren’t impressed by the numbers.
So is this dip a buying opportunity? For me, it isn’t. I’ve been bearish on Vodafone shares and the latest set of figures hasn’t changed my mind. But I think the results are worth a closer look.
The numbers
In my opinion, Vodafone’s full-year results were sluggish. Total revenue fell by 2.6% to €43.8bn, which wasn’t impressive.
The company stated that “good underlying momentum and the benefit from the acquisition of Liberty Global’s assets in Germany and Central and Eastern Europe was offset by lower revenue from roaming, visitors and handset sales, adverse foreign exchange movements and the disposal of Vodafone New Zealand”.
Adjusted EBITDA came in at the €14.4bn. This was at the lower end of the company’s guidance range of €14.4bn to €14.6bn. The market didn’t like this and so the shares have been falling since the announcement.
Free cash flow also fell by a hefty 11.9%. This significant fall was due to Vodafone’s investment in its network. While I think the rollout of 5G is exciting, it comes at a cost. This means that it may place pressure on future cash flow.
Bright side
I’m pleased to say that there was some positive news as well. Vodafone managed to maintain its dividend. It dished out a final income payment of 4.5 euro cents, taking its full-year payout to 9 euro cents. At least it was in line with 2020’s dividend.
My concern with the telecoms giant has been its mammoth debt pile. But it’s encouraging to see that it reduced its net debt position by €1.5bn to €40.5bn. This was due to the money from the Vantage Towers IPO, as well as its free cash flow.
The net proceeds from this IPO were earmarked to reduce Vodafone’s debt. So I’m pleased it actually did what it said it was going to do.
Should I buy Vodafone shares?
I’m not convinced by the investment case for Vodafone shares, however. It faces fierce competition and as I said, cash flow is likely to be hit by upgrading its network to 5G.
Consumers are fickle and are likely to go with the cheapest deal. I guess there are cross-selling opportunities with the acquired Liberty businesses. It can lock in customers by offering them multiple products, but this will take time.
Vodafone shares certainly offer an attractive dividend yield, currently 6%. For the income-seeking investor, like me, this sounds enticing. But it’s worth remembering that the performance of the stock price hasn’t been great over the past few years. Also the dividend isn’t fully covered by its earnings.
In terms of the company’s strategy, it’s focused on driving shareholder returns through deleveraging the business, improving return on capital, as well as the committing to its dividend.
That’s all very laudable. But I think there are better opportunities to invest my money in. I’ll give Vodafone shares a miss for now.
