The Motley Fool

Time to buy the Vodafone share price as revenue growth returns?

Vodafone (LSE: VOD) has been having a terrible time in India, and its future in that country could now be in doubt after the Supreme Court ruled against it in an ongoing case over licence fees and taxes.

The adverse judgment plunged the telecoms giant to a loss of €1.9b for the first six months of the year, and Vodafone is now “actively engaging with the government to seek financial relief.” Its continued presence in India could hinge on the outcome of that, with the company having been in constant dispute with authorities over tax and regulation in recent years.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!


In better news, first-half organic revenue rose by 0.3%. That’s maybe only a modest improvement, but it represents a return to growth in the second quarter of 0.7% (after the Q1 figure had slipped 0.2%). Vodafone has updated its full-year guidance too, and is now expecting adjusted EBITDA in the range of €14.8b to €15.0b, up from a previous estimate of €13.8b to €14.2b.

The overall boost to optimism generated from Vodafone’s return to growth pushed the share price up 3% on the morning of the results.

Dividend watchers will have their eyes focused on cash flow, and expectations have been pegged back slightly to around €5.4b, from a previous suggestion of “at least” that figure. Cash flow is, unsurprisingly, set to be impacted by the India judgment.

After the company (finally, sensibly) reduced its dividend payments last year, after years of paying out more cash than it was earning and keeping the yield unsustainably high, the pressure should be off now and I think the currently forecast 4.8% yield should be safe. The announcement of an interim dividend of 4.5 euro cents per share, representing 50% of last year’s total dividend, would seem to reinforce that.

Dividend policy

That’s not to say it’s rock solid, mind, as it would only just be covered by earnings this year, with cover reaching only around 1.3 times based on earnings forecasts for the year to March 2021.

Vodafone is a company in a capital-intensive industry, and is investing in rolling out its 5G offering, which has now been launched in seven European markets – and it should reach nine European markets by the end of the current financial year.

On top of that, Vodafone’s net debt figure ballooned to more than €48b at 30 September, up from a little over €32b a year previously.

When I put those two together, and I don’t know if I’m the only one who’s concerned about it, I really can’t see the sense in paying out such big dividends.

Bull run?

Still, Vodafone looks like it’s reversed the bearishness that resulted in the steady share price slide since the end of 2017 and resulted in a slump of nearly 50% by a low point in May 2019. Since then, the price has put on 35%, and I see the shares as being on a more sustainable valuation with a forecast price-to-earnings ratio dropping to around 16.5 by March 2021. Back in 2016 we were looking at P/E multiples of around 40, which I thought was crazy at the time.

Would I buy the shares now? No, because I’m disturbed by the huge debt pile, and Vodafone’s inscrutable dividend policy still has me scratching my head.

A top income share with a juicy 6% forecast dividend yield

Income-seeking investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business that’s throwing off gobs of cash!

But here’s the really exciting part…

Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...

He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Income Share… free of charge!

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.