I own shares in two FTSE 100 companies that are struggling to rediscover past glories.
Vodafone (LSE:VOD) was once the largest company in the index, with a share price in excess of £5. Its shares now change hands for around 75p, having previously been over £1 in February 2023, albeit very briefly.
The last time Lloyds Banking Group (LSE:LLOY) stock was trading at more than 100p was in 2008. That was the year it completed its ill-fated takeover of HBOS.
Both are well-known brands with good reputations. But is it realistic to expect their share prices to return to £1?
Ringing the changes
Using one measure, Vodafone appears particularly cheap at the moment, which could help its shares recover.
Based on its balance sheet at 30 September 2023, its price-to-book (PTB) ratio is 0.36. This compares favourably to other telecoms companies in the FTSE 100. BT has a PTB of 0.95 while Airtel Africa‘s is 1.77.
Put another way, if the business ceased trading today, it would be able to return cash of 196p a share to its owners.
However, the company has many non-physical assets on its books — goodwill, licences and spectrum fees — that are hard to value accurately.
But even if these were written down by 50%, Vodafone’s assets less its liabilities would still be more than its current market cap.
However, the company has a mountain of debt — €65bn at 30 September 2023 — that needs to be serviced. Rising interest rates have increased the cost of a large proportion of this.
And it’s struggling to grow. The company’s preferred measure of profitability — EBITDAaL (earnings before interest, tax, depreciation and amortisation, after leases) — is expected to be lower in FY24 than it was in FY23.
| Period | EBITDAaL (€bn) |
| FY20 | 14.9 |
| FY21 | 14.4 |
| FY22 | 15.2 |
| FY23 | 14.7 |
| FY24 (forecast) | 13.3 |
| FY25 (forecast) | 13.4 |
Conscious of this, the directors have embarked on a major cost-cutting programme, entered into an agreement to sell its interests in Spain, announced plans to merge its UK operations with Three and implemented some significant price increases.
A dark horse
Like Vodafone, Lloyds stock market valuation is less than its book value.
It has a PTB of 0.64. But unlike the telecoms giant, it’s higher than its peers — NatWest Group (0.53) and Barclays (0.31).
However, underlying profit is forecast to grow over the next four years. It was £7.4bn in 2022 and it’s expected to be 11% higher within four years.
| Period | Forecast underlying profit (£bn) |
| FY23 | 7.6 |
| FY24 | 7.3 |
| FY25 | 7.7 |
| FY26 | 8.2 |
However, for the bank to have a share price of £1, earnings are going to have to more than double.
And with significant exposure to the UK economy, I can’t see this happening soon. The UK’s gross domestic product isn’t expected to return to its long-term trend rate until 2027.
Who might make it?
I think the Vodafone share price could reach £1 again. But it might take a few years and a lot depends on its business performance. The anticipated benefits from its turnaround plan, and its simplified corporate structure, will take a while to feed through to its bottom line.
As for Lloyds, I believe it to be highly unlikely. I don’t think the bank’s current stock market valuation accurately reflect its true worth. But something game-changing would have to happen for its shares to break through the 100p barrier once more.
