The Vodafone (LSE: VOD) share price had been climbing ahead of a third-quarter update due Thursday (5 February). But early trading on the day saw the shares lose a quick 5% after service revenue in Germany rose just 0.7% — well below expectations. Operations in Germany have been struggling, and a return to revenue growth had been a highlight at first-half results time.
And in the UK, organic sales revenue declined 0.5% (following a 1.2% increase in Q2). But the company said that was expected. And that the “integration of VodafoneThree is progressing well and firmly on track.“
Looking at the wider picture, Vodafone saw total revenue increase 6.5% from the same quarter a year ago, to €10.5bn. Service revenue gained 7.3%. And adjusted EBITDAaL (a variant on EBITDA that allows for some one-off items) rose 2.3%.
The company highlighted its share buyback progress, having returned €3.5bn to shareholders by that route so far this financial year. And on the same day, we had the announcement of a further buyback of up to €500m, due for completion by 11 May.
What will the year bring?
With just the final quarter to go, Vodafone is still upbeat in its guidance for the full year. CEO Margherita Della Valle said: “Looking ahead, we are on track to deliver at the upper end of our guidance range for both profit and cash flow.”
To reiterate, that’s the upper end of €11.3bn to €11.6bn in adjusted EBITDAaL, with adjusted free cash flow between €2.4bn and €2.6bn. And the board still expects to grow its full-year dividend by 2.5%. That should mean a yield of around 3.5% on the closing share price Wednesday.
Are Vodafone shares cheap?
The Vodafone share price has had a strong run of late, up 64% in the past 12 months. But that does follow a steady decline, and we’re still looking at a five-year fall of 19%. The stock did get overheated, back in the days Vodafone was paying twice the dividend level of today — and the inevitable reset happened in the 2024-25 year.
Looking beyond the healthy expectations for 2025-26, analysts predict a further 35% rise in earnings per share by 2028. And they expect the dividend to be 10% ahead of last year’s payment by then.
We’ll surely need some long-term improvement in underlying performance to go much further. If we don’t get it, the Vodafone share price might just be coming back from a bit of undervaluation. And then more years of stagnation?
Change at the top
I expect more than that. And it’s all down to Margherita Della Valle taking control in 2023. Prior to her arrival, Vodafone seemed to be just shuffling things around and hoping something good might drop out.
But now, gone are those loss-making operations in Spain and Italy. I see the Three merger as adding long-term value. And even Germany, while maybe a bit disappointing this time, is turning positive.
With a forecast price-to-earnings (P/E) ratio of 17.5, dropping to 13 by 2028, Vodafone is a solid long-term consideration in my book.
