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Boosted by a 4% rise on interim results morning, the Vodafone (LSE: VOD) share price is approaching a 40% gain in 2025.
In the half, total revenue grew 7.3% with service revenue up 8.1%. And shareholder returns look good.
CEO Margherita Della Valle said: “Following the progress of our transformation, Vodafone has built broad-based momentum. In the second quarter we saw service revenue accelerating, with good performances in the UK, Türkiye and Africa, and a return to top-line growth in Germany.“
Plenty of cash
There’s enough cash flow for both buybacks and dividends. Vodafone has completed €3bn in buybacks since May 2024, with another €1bn still planned. The next tranche of €500m starts now.
The boss added that “we are introducing a new progressive dividend policy, with an expected increase of 2.5% for this financial year.” The forecast yield is about 4.4%.
The company lifted its full-year guidance to the upper end of its earlier ranges. Adjusted EBITDAaL — EBITDA before leasing costs — should come in between €11.3bn and €11.6bn. And we should see adjusted free cash flow of €2.4bn to €2.6bn.
What’s not to like about all this? Well, there is one thing…
Rising debt
Net debt at 30 September reached €25.9bn, up from €22.4bn at 31 March. Additional debt from the VodafoneThree merger apparently played a part. And the latest figure is actually down from the €31.8bn recorded at the halfway stage last year.
But it’s still a huge amount, pretty much equivalent to the company’s entire market cap.
Debt can make the usual valuation measures a bit misleading. For example, Vodafone is on a forecast price-to-earnings (P/E) ratio of 12. But adjusting for the debt, we get an enterprise value P/E of twice that at about 24.
That might still be fair value. But it has to question the wisdom of shelling out so much in buybacks. Still, I guess €4bn over two years wouldn’t actually make much dent in the debt anyway.
Reshaping
It’s two-and-a-half years since Della Valle said: “Our performance has not been good enough. To consistently deliver, Vodafone must change.” At the time, more pain seemed inevitable before the hoped-for gains. And 2024-25 was the crunch year.
The company reported a loss per share that year — though with positive adjusted earnings per share. And the dividend was slashed in half, from its previous unsustainable levels.
This half so far has led analysts to forecast a spell of earnings, dividends and cash flow growth. It wouldn’t drop the P/E by much over the next couple of years. But I really am impressed by the way the new CEO has steered the company in the short time she’s held the wheel.
Buy, or not?
I do have concerns over valuation. That debt-adjusted P/E of 24 suggests there’s a fair bit of growth premium built into the Vodafone share price. And growth forecasts, while positive, aren’t exactly stellar.
Still, one approach is to forget about the debt and just keep taking the dividends — much as a lot of BT Group shareholders do. There’s an appeal there that’s definitely worth considering.
