The Vodafone (LSE:VOD) share price is up significantly this morning (24 July). As I write, shares in the telecoms giant are trading nearly 5% higher than their closing price on Friday.
So what’s behind this big move in the shares? And could this be the start of a recovery?
Good trading update
The share price bounce this morning can be attributed to a solid trading update for the first quarter of the company’s financial year.
For the three-month period to the end of June, Vodafone generated group service revenue growth of 3.7% (1.9% the previous quarter). This was driven by a strong performance in the UK (5.7% growth) and an improvement in the rate of revenue decline across Germany, Italy and Spain.
Meanwhile, in the company’s business segment, service revenue growth came in at 4.5% (2.9% the previous quarter). This was down to a good performance in digital services.
On the back of this performance, Vodafone reiterated its guidance for the full year. It still expects adjusted EBITDAaL (earnings before interest, tax, depreciation, and amortisation, after leases) of around €13.3bn along with adjusted free cash flow of around €3.3bn.
“As we progress our plans to transform Vodafone, we have achieved a better service revenue performance across almost all of our markets. We have delivered particularly strong trading in our Business segment and returned to service revenue growth in Europe,” said CEO Margherita Della Valle.
It’s worth noting that the company has also announced the appointment of Luka Mucic as CFO. Mucic was previously CFO of SAP SE (one of Europe’s largest technology companies). So this is another positive development.
Upwards from here?
So is this the start of a recovery in the share price? Possibly.
When I last covered Vodafone, I noted that Della Valle has plans to streamline the company’s operations and improve its performance (which has been underwhelming). This turnaround plan – which is focused on customers, simplicity, and growth – is the key to a share price recovery, to my mind.
Now it’s still very early days here. But the trading update this morning suggests the company is on the right track.
And the CEO clearly believes that there is much more that can be done, which is encouraging.
“We have taken the first steps of our action plan focused on customers, simplicity, and growth, but we have much more still to do,” Della Valle added.
Of course, the update today covers just one quarter. For the share price to continue rallying from here, we will need to see consistent growth.
And there’s no guarantee the company will deliver. Ultimately, Vodafone is a large, complex business with many moving parts.
Given today’s numbers, I see reasons to be optimistic. However, until the company can demonstrate a consistent track record of growth, I will be looking to invest in other FTSE shares.
