As a giant of the telecommunications industry, Vodafone (LSE:VOD) operates throughout Europe and Africa. While historical results have been mixed, the company has rebounded quickly since the Covid-19 pandemic. With much attention has focused on recent corporate activities, the Vodafone share price may also be cheap. Should I add this firm to my long-term portfolio? Let’s take a closer look.
Recent and historical results
Between the 2017 and 2021 fiscal years, group revenue has declined from €47.6bn to €43.8bn.
Conversely, profits before tax have increased from €2.7bn to €4.4bn. In addition, earnings per share (EPS) has grown slightly from ¢8.04 to ¢8.08.
While the fall in revenue is disappointing, it is encouraging to see consistent growth in profits before tax.
It is particularly heartening when we consider that profit before tax in the 2020 fiscal year was just €795m. This may be explained by a collapse in international roaming revenue during the pandemic.
Revenue for the three months to 31 December 2021 also reached €11.6bn, up 4.3% year on year. The firm expects free cash flow of €5.3bn for the 2022 fiscal year. This could go towards future expansion or paying down the company’s not insignificant debt pile of €73bn. It should be noted, however, that past performance is not necessarily indicative of future performance.
Investment business AJ Bell noted that organic sales growth was only 2.7% for the final three months of 2021. It further stated that investors require patience in what can be a slow-moving sector.
Recent activities and the cheap Vodafone share price
In February 2022, the company announced that it had rejected an €11bn bid for its Italian business by French telecommunications firm Iliad.
Although this offer was rejected, it does indicate the health of Vodafone’s European operations. It currently has a 28% share of the Italian market.
In the same month, Vodafone announced that it was in advanced discussions for the sale of part of its stake in Indus Towers, India’s largest mobile company. It would still hold 21% of Indus Towers.
While we don’t currently know the price at which this sale could occur, the proceeds will be useful for managing debt.
The Vodafone share price may also be cheap based on price-to-earnings (P/E) ratios. It has a forward P/E ratio, calculated by dividing the share price by forecast earnings, of 14.88. This is significantly lower than a major competitor, Telstra Corporation, that has a forward P/E ratio of 22.73.
This may suggest that the firm is undervalued at current levels. It is trading at 126.9p, down 7.2% in the past year.
Recent results and potential sales suggest that Vodafone is operating from a position of strength. Given that the current Vodafone share price may also be cheap, I think this is a good business to add to my long-term portfolio. I will be buying shares soon.
