The Vodafone (LSE:VOD) share price is now only 4.5% above its 52-week low. It’s a sad decline for the telecoms giant that was once Britain’s most valuable listed company. Today, it’s ranked 31st in the FTSE 100 league table of market-caps.
And no matter what the company’s directors do — or how well it performs — it doesn’t appear to reverse the decline.
Ringing the changes
In February 2020, the group’s shares were changing hands for around 150p. They are now 57% lower, at around 66p. But from an operational perspective, the company hasn’t been standing still over the past five years.
It’s sold five under-performing divisions (Malta, Hungary, Ghana, Spain and Italy), floated Vantage Towers — its German infrastructure company — on the Frankfurt Stock Exchange, announced an alliance with e& and changed its chief executive and chief financial officers.
Further, it’s entered into a strategic partnership with Microsoft to help improve the experience of customers, formed a joint venture with Altice to provide fibre to 7m homes in Germany, received regulatory approval for a merger of its UK operations with Three, and announced five share buyback programmes.
The result is that company was more profitable during the year ended 31 March 2024 (FY24), than it was in FY20. It’s also improved its balance sheet over this period. Using the sales proceeds from its disposals, the company’s managed to reduce its net debt from €42.1bn to €33.2bn.
In addition, the disposal of some of its less efficient divisions has helped improved its pre-tax return on capital employed, from 6.1% to 7.5%.
This all sounds good to me. And yet its share price appears to be in perpetual decline.
On the other hand…
However, I have to remind myself that, in terms of revenue, the group’s 22% smaller than it was.
Its largest division — Germany — is loss-making and is expected to remain so for the foreseeable future. This is important because the country contributes 30% of the group’s revenue. And its dividend was cut by 50% in 2024.
Also, despite the reduction in borrowings, relative to EBITDAaL (earnings before interest, tax, depreciation, and amortisation, after leases), its net debt’s higher than it was in FY20.
Cheap as chips?
But the principal reason why I hang on to my shares is that I believe the group’s undervalued.
Its five most recent disposals have realised sales proceeds of between 5.3 (Spain) and 8.4 (Hungary) times EBITDAaL. Applying the lowest of these to the company’s FY24 earnings (€11.1m), and reducing it by the company’s net debt (€31.8bn at 30 September), gives a possible valuation of €27bn (£22.4bn at current exchange rates).
This is a 35% premium to today’s share price. In theory, this is what someone would have to pay if they wanted to buy Vodafone.
Decision time
On reflection, I’ve decided to retain my shares. Although I can’t force other investors to value the group as I do, I reckon rational investors will look more favourably on the company over the coming months.
But my patience is wearing thin. If the share price doesn’t start to recover significantly by the end of 2025, I’m going to revisit my decision.
