Image source: Vodafone Group plc
The Vodafone (LSE:VOD) share price has been consistently above 80p since the start of July. At the end of October 2024, the stock was changing hands for 72p. Today (3 November), an investor could buy one for 92p.
In my opinion, an increase of 26% over 12 months is a pretty good performance. However, it has to be acknowledged that 40 members of the FTSE 100 have done better, including Airtel Africa (167%) and BT (31%), the two other telecoms companies on the index.
But these things are all relative. The last time Vodafone’s stock was valued at more than 90p was in early May 2023. On this basis, I think it’s fair to say that a recovery is underway.
What’s going on?
The catalyst for this appears to be a period of calm. To try and improve its financial performance, the group’s undertaken a major restructuring.
In recent years, it’s disposed of some of its under-performing divisions and non-core assets. Since the start of 2023, the telecoms giant’s exited Ghana, Hungary, Spain and Italy. It’s also sold its interest in Indus Towers and reduced its shareholding in Vantage Towers, two infrastructure companies. In addition, regulatory approval was received in March for the merger of its UK operations with Three.
Fans of share buybacks will probably argue that there’s been a steady increase in the group’s share price since a €2bn programme was announced in May 2024. A year later, another €2bn was declared. However, at the same time as embarking on this policy it also unveiled a 50% cut in its dividend.
Seeing the wood for the trees
With all these changes, it’s been difficult to assess the underlying performance of the group. Its last trading update said it expected to report adjusted EBITDAaL (earnings before interest, tax, depreciation and amortisation, after leases) of €11.3m-€11.6m for the year ending 31 March 2026 (FY26). At the lower end of this range, the group’s currently valued at 2.2 times earnings.
Deutsche Telekom, Europe’s largest in the sector, has a market-cap of 3 times adjusted EBITDAaL. This suggests that if Vodafone can continue to make steady progress, its share price could move higher still. If it matched the valuation of its bigger rival, its shares would be changing hands for around a third more.
Work to be done
But to get there, I suspect it has to convince investors that its problems in Germany are under control. A change in law made it illegal for television contracts to be bundled with the rent in apartment blocks. This has harmed all parts of the business in the country. Comparing FY25 with FY23, TV customers are down 31.4% and the number of mobile and fixed broadband users has fallen 6% and 4.8% respectively.
And if the rally is to continue, I think it will also need to demonstrate that VodafoneThree is able to grow in a highly competitive UK market.
If it can do these things, I think the Vodafone share price will continue to climb higher. There are plenty of ‘ifs’, of course. But for a while now, I’ve thought that the group’s been undervalued relative to its peers because of all the changes and uncertainty.
Now things appear to have settled down, I think it could be a stock to consider.
