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It’s onerous to imagine that Vodafone (LSE:VOD) shares have been as soon as altering fingers for almost £5.50 simply after the flip of the millennium. In the present day, the FTSE 100 telecoms inventory is a shadow of its former self, with the share worth languishing beneath 70p.
Following an 18-month Competitors and Markets Authority (CMA) investigation, the corporate secured long-awaited regulatory approval for a merger with rival agency Three UK in December final 12 months. The three way partnership is anticipated to come back on stream imminently.
However, how has this information impacted affected person long-term traders in Vodafone shares, who’ve endured substantial losses?
Six-month efficiency
Again in October 2024, a £10,000 funding in Vodafone might have purchased 13,329 shares. Sadly, information of the merger approval appears to have had little impact on the inventory’s downward trajectory. That holding would solely be value £9,250 right this moment.
Not less than an interim dividend fee of £251.39 would have softened the blow considerably. However traders would nonetheless be almost £500 within the crimson. To make issues worse, that distribution marked a big 50% reduce from the identical interval final 12 months. An uncomfortable reminder that no dividends are assured.
Share worth restoration hopes
Frankly, so much is using on the merger with Three. Little else appears to be going proper for Vodafone at the moment. Service income development in Europe is stagnant, dragged down by a very poor efficiency within the essential German market — the supply of over a 3rd of the group’s gross sales.
Authorized modifications have ended bulk tv contracting in German residence blocks. That’s a giant issue behind Vodafone’s 6.4% service income droop within the jurisdiction. Amongst households caught by the brand new regulation, the corporate has misplaced over half of its clients.
The steadiness sheet is one other massive concern. Internet debt of £26.4bn is an uncomfortably excessive legal responsibility for a corporation with a market cap that’s £9.2bn lower than this determine. It’s little marvel the group has resorted to dividend cuts, in addition to promoting off its Spanish and Italian companies.
On the brilliant facet, development in Türkiye and Africa is accelerating. These markets might show more and more vital for a restoration within the Vodafone share worth — if one is to materialise in any respect. Nearer to residence, it’s good to see revenues are additionally recovering within the UK, which is accountable for almost a fifth of whole gross sales.
After which we come again to the merger. The mixed entity will boast 27m clients, making it Britain’s largest cellular community. In concept, that ought to present the group with vital economies of scale and improved effectivity. Moreover, reported plans for the launch of a TV service might assist buyer retention figures. So, there’s some room for optimism.
I’m not satisfied
Nevertheless, I don’t suppose the merger is ample to assuage my elementary considerations in regards to the well being of Vodafone’s enterprise. It’s a debt-heavy enterprise that’s shedding tens of millions of shoppers in a core market. To make issues worse, chunky dividend cuts considerably cut back the inventory’s passive earnings enchantment.
Buyers in Vodafone shares will undoubtedly hope the following six months are extra optimistic. Their religion could also be validated, however I received’t be becoming a member of their firm for now. General, I believe loads of different FTSE 100 shares have a extra compelling funding case right this moment.
