I think the Vodafone (LSE: VOD) share price might be set for a comeback, after a 58% slump over the past five years.
First-half results on Tuesday (12 November) did fail to impress, mind, pushing the shares down 8% on the day.
But now on Thursday, Vodafone has announced its next share buyback worth up to €500m.
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Mixed half
At H1 time, the company’s previous €500m buyback tranche was “almost complete, with 1.2bn shares repurchased for €1bn by 11 November 2024.”
First-half operating profit rose by 28.3%. But Vodafone put that down primarily to €0.7 billion from the disposal of an 18% stake in Indus Towers in India in the first quarter.
Perhaps of most concern, service revenue in Germany fell by 6.2%. Excluding the effect of a law change lowered it to 2.4%, but it’s still a fall.
In all, I’m not seeing much in the way of results from Vodafone’s 2023 transformation plan yet.
We will simplify our organisation, cutting out complexity to regain our competitiveness. We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business. — CEO Margherita Della Valle, May 2023
Mixed messages
It’s a long-term thing and maybe it’s still too early to tell. Perhaps I’m being a bit impatient. But to me, Vodafone is sending confusing signals.
It couldn’t keep paying its huge dividends, but it can afford these share buybacks.
We’re in the midst of a company transformation that’s going to cost money, but the priority seems to be handing back another spare half a billion.
To be fair, Vodafone did raise €5.4bn in cash from the disposal of Spanish assets and parts of its stake in Vantage. And a one-off buyback return can make more sense than a committment to bigger dividends.
The board might also see the Vodafone share price as so low now that it’s worth spending every penny it can. But it still makes it tricky for me to see where the focus lies, and that’s been my main concern for years.
Brighter future?
I worry that these share buybacks might simply be an attempt to shore up Vodafone’s dwindling share price. Or is that a bit too cynical?
It might sound like I have a serious downer on Vodafone. But I really don’t see it that way, and here’s what I think is the good stuff.
The dividend yield reached over 10% before the 50% cut came in. But with the shares down, forecasts now put the new yield at 8.2%. That’s still one of the FTSE 100‘s biggest, and it should be well covered by forecast earnings.
We’re looking at a forecast price-to-earnings (P/E) ratio for this year of a below-average 11, maybe fair in the circumstances. But forecasts have it dropping to just 8.4 by 2027.
If the Vodafone transformation comes good, that might turn out to a steal. But the ‘if’ isn’t a done deal yet.
