Vodafone (LSE: VOD) shares are having an absolute stinker, but frankly there is nothing of news value in that. The global telecoms giant has been a share price disaster for two decades, but investors were willing to overlook that as long as the dividends kept rolling in.
I have been a whisker away from buying Vodafone shares on a number of occasions, but always pulled out at the last minute. With chief executive Nick Read departing under a cloud, I’m glad I did.
Vodafone shares are sliding
Vodafone stock has fallen 15% in the last month, at a time when the FTSE 100 has jumped more than 10%. Measured over five years, it is down 60%.
Yet even that dismal figure fails to convey the misery of being a long-term Vodafone shareholder. In March 2000, more than 22 years ago at the height of the dot.com boom, its shares peaked at 548.20p. Today, they trade at around 86p.
Vodafone survived the tech crash because there was a proper business behind all the hype, and management set out to exploit it by turning the London-listed group into a global telecoms giant.
It carried investors along by lavishing them with dividends, while the share price went nowhere very, very slowly. In July 2002, Vodafone shares found a bottom at around 135p. In July this year, they were still trading at roughly the same level. Not now.
Investors have stopped burying their heads in the sand. Vodafone’s go-nowhere share price was always a sign of a misfiring company. Management has made colossal errors, such as £15.8bn takeover of Liberty Global’s cable network in Germany, lined up by ex-boss Vittoria Colao, but completed in 2019 after his departure.
Germany is a tough consumer market and Vodafone’s poor customer service didn’t help. The sprawling multinational giant seems to be failing on too many fronts. Management recently downgraded full-year guidance in yet another disappointment. Although underlying cash profit before leases is still on course to top €15bn.
That 8.7% yield isn’t enough
First-half results show Vodafone’s net debt increased by €3.9bn to €45.5bn. That’s about £40bn for a company with a market-cap of £23bn. That is worse than it looks, as the maturity dates stretch to 2059 and the group still has an enterprise value of around €90bn.
Some investors have pinned their hopes on Vodafone consolidating close to home, but any hook up with Three UK seems likely to fall foul of competition regulators.
Vodafone’s best hope is to rein in its ambitions and get back to basics. Cut costs, keep customers happy, secure the bottom line and pay down that debt. If the new CEO does all of that, today’s valuation of 9.4 times earnings could pay off for far-sighted investors.
Vodafone still pays a stunning dividend, one of the finest on the FTSE 100, yielding 8.7%. Cover is thin at 1.2, but at least it is covered. Personally, I don’t trust it. It has been cut twice in the past 10 years and could be hacked again as management battles to turn Vodafone round.
It can fight on without me. I like some risk in my portfolio, but not this much.
