I gave up on the Vodafone (LSE: VOD) share price years ago. Although I was impressed by CEO Margherita Della Valle, who laid out a clear recovery plan after her appointment in April 2023, I felt the stock had struggled for too long to justify buying in.
Many investors were drawn to its generous yield. But that was more a result of a collapsing share price than genuine strength. The dividend was cut by 40% in 2019 and 50% this March. For a long time, it felt like throwing good money after bad.
Vodafone shares are down 28% over five years, but things are finally picking up. They’ve bounced 15% in the last year. Long-term holders deserve a reward. I don’t regret staying away though. That recovery was a long-time coming.
Troubled FTSE 100 stock
Vodafone has faced a long list of challenges. Arguably, it expanded too far, too fast. Growth in Germany stalled. Competition increased across Europe. It offloaded assets in Hungary, Ghana, and Spain, and struggled to integrate others. The business was bloated and confused, and net debt still stands at €22bn (£19.2bn).
I was far more tempted by BT Group (LSE: BT.A), and was a whisker away from buying it 18 months ago. Now I sorely wish I had. The share price is up 60% in the last year. Over five years, it’s up 110%, with dividends on top.
It faced its own problems, including a giant pension deficit, stiff competition from alt-net rivals, and huge bills for building infrastructure. But CEO Allison Kirkby, who joined in July 2023, has made clear progress. She’s slashing jobs and pushing ahead with full-fibre broadband.
Vodafone and BT now have similar market caps of around £20bn and carry price-to-earnings ratios of just over 12 and 11, respectively. Vodafone’s trailing yield is 4.62%, while BT’s is lower at 3.94%. BP’s lower yield is largely due to its surging share price, rather than dividend cuts.
Tale of two trading updates
Both firms reported results on 25 July. Vodafone’s Q1 update showed group revenue rising 3.9% to €9.4bn, with service revenues up 5.3% to €7.9bn. UK service revenue grew slightly, but Germany slipped.
BT’s update was less exciting. Total adjusted revenues dipped 3% to £4.87bn, while pre-tax profit fell 10% to £468m. Openreach broadband lines fell by 169,000, driven by losses to competitors and a weaker overall market
So where do they go next? Telecoms is a brutally competitive industry. Both companies face intense pressure to invest billions just to keep up. Neither result screamed breakout growth, although both CEOs deserve credit.
Consensus analyst forecasts suggest Vodafone’s price might rise by less than 1% over the next year, from 82.84p to 83.52p. That’s a sharp slowdown.
Analysts predict BT’s might drop 3.7%, from today’s 207.5p to 199.5p. Forecasts are often wrong, but these numbers support my feeling that both companies are set to slow after the recent excitement.
Investors might still consider buying if they’re focused on dividends or contrarian value, perhaps inside a Stocks and Shares ISA. But these aren’t the first FTSE 100 picks I’d reach for right now.
