The Vodafone (LSE: VOD) share price has been on a steady decline since September last year (2024), after what seemed like a promising recovery earlier in the year. Things were looking quite good in the first three quarters, with the share price up 10% year-to-date.
Then it all turned south, now down 13.5% since the 52-week high of 80p. The decline, partly the result of a weakening UK economy, was exacerbated by a dividend cut announced for 2025.
It’s all part of CEO Margherita Della Valle’s plans to cut costs and revive the company’s fortunes. She also instigated efforts for streamlining operations to focus on key markets by selling off non-core assets, including its Italian and Spanish businesses.
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The price stands at around 69p per share as I write on 24 January, approximately 12% above its 52-week low of 62.59p in early February 2024.
Earnings and dividends
During 2023, earnings per share (EPS) fell below expectations by 135% and 25%, respectively, in H1 and H2. The first half of 2024 has already shown promise, with EPS beating estimates by almost 100%. Analysts expect EPS to remain steady at 3p per share in the second half.
Operating profit jumped 28.3% to £1.84bn in the first half of last year. This was primarily due to £269m in proceeds from the disposal of its stake in Indus Towers.
The share price rollercoaster has sent the dividend yield on an odd trajectory, initially dropping from 11% to 5.5% before edging back up to 8.3%. That might look attractive right now but is likely to fall back to around 5.5% when the final-year dividend for 2025 is announced.
Risks and recovery potential
The question any investor should be asking is, how did Vodafone manage to fall to a 25-year-low in 2023? Its problems seem to have started way back in 2018, so blaming the pandemic is not an option.
If it’s going to make a recovery, the underlying issue — and its resolution — need to be identified. The likely reason is a combination of factors: failure to make headway in India, a drop in revenue from roaming charges during the pandemic and a suffocating debt load.
It also faces significant risks, including stiff competition in the telecoms industry, regulatory pressures and foreign exchange losses in emerging markets.
India and the pandemic are now out of the equation and debt has dropped from $66bn to £48bn over the past five years.
It’s certainly a good start but it’s yet to fully sway the opinion of analysts.
Looking ahead
The average 12-month price target looks to be around 89p, with estimates ranging from 65p to 142p. The overall trend seems to be one of uncertainty. Brokers seem equally undecided, with UBS putting in a neutral rating on the stock earlier in the week.
Revenue and earnings dropped sharply in 2023, shaking investor confidence and prompting the turnaround plan.
But despite the struggling price, things are already starting to look better. Since the share price tends to trail earnings, there’s a strong chance of a recovery this year. It all hinges on the 2024 full-year results due in May this year.
Vodafone may be worth considering for value investors aiming for long-term growth. But I fear the share price could still fall further before it makes a decisive recovery.
