For much of the past decade, Vodafone Group (LSE: VOD) shares have been a grim graveyard for investors’ money. Also, they’ve gone pretty much nowhere but down over the past year. But the telecoms giant might be set to turn the tanker around.
The long decline
Go back to January 2014 and the Vodafone share price was hovering around £3. Alas, it’s never been near that high-water mark ever since.
On Tuesday, the share price closed at 93.83p. This was just 12.7% above its 52-week low of 83.24p set on 16 December 2022. It’s also a hefty 29% below the 52-week high of 132.1p seen on 25 May 2022.
At this price, the global telecoms group is valued at just £25.9bn — a small fraction of its dotcom-era valuation. It’s also dwarfed by the €45bn of debt Vodafone carries on its balance sheet.
Here’s how this FTSE 100 stock has performed over seven periods:
| One day | -2.2% |
| Five days | +3.5% |
| One month | +4.9% |
| Year to date | +11.9% |
| Six months | -8.4% |
| One year | -23.8% |
| Five years | -55.2% |
Yet Vodafone shares have shown some strength recently, rising almost 12% since 30 December. However, the stock has been a long-term lemon. It’s down by almost a quarter over one year and more than half over five years.
What might give it a boost?
What might improve Vodafone’s fortunes and reinvigorate its share price? I have five ideas.
First, the company elevated interim CEO Margherita Della Valle to the full role on 27 April. Apparently, Della Valle impressed the board since stepping up from chief financial officer.
As interim CEO, she shed 500 jobs from Vodafone’s HQ, restructured her executive committee and devolved more decision-making authority to local operating companies.
Second, Della Valle needs to make some tough calls on Vodafone’s sprawling size and shape. Its key markets in Germany, the UK, Italy and Spain are all mature and fiercely competitive. Perhaps scaling down or selling operations in weaker markets could generate much-needed windfalls.
Third, more cost cuts and reduced headcount could produce savings worth hundreds of millions of pounds.
Fourth, Vodafone’s long-mooted merger with UK rival Three might actually happen. This would generate economies of scale as overlapping operations get trimmed. But regulator the Competition and Markets Authority might veto any deal.
Fifth, the company could maintain its generous cash dividend — held at €0.09 a year for the past four years.
The stock looks undervalued
At its current price-to-earnings ratio of 14.6, the stock offers an earnings yield of 6.8%. This is broadly in line with the wider FTSE 100.
However, its dividend yield of 8.3% a year is more than twice the Footsie’s yearly cash yield. Alas, this is only covered 0.8 times by trailing earnings, which is far from great.
For the record, my wife bought Vodafone shares in early December at an all-in price of 90.2p a share. And I’d eagerly buy more at the current price of 93.83p, if I had spare cash to invest.
Despite its problems, I do see a path to prosperity for the telecoms group. Then again, it remains to be seen whether the leadership team can find it!
