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Vodafone Group (LSE:VOD) shares at the moment are buying and selling at their costliest since late 2023. A constructive response to full-year financials has swept the telecoms titan 3.4% increased on Tuesday (14 Could), to 72.3p per share.
However I imagine the FTSE 100 agency nonetheless seems grime low-cost at at present’s costs. Listed here are three the explanation why.
Earnings
For this monetary 12 months (to March 2025), Vodafone trades on a ahead price-to-earnings (P/E) ratio of 9.3 occasions.
This studying — which is constructed on Metropolis expectations that earnings will rise 17% 12 months on 12 months — is under the Footsie common of 10.5 occasions.
Vodafone’s share value additionally instructions a price-to-earnings progress (PEG) ratio of 0.6. Any sub-1 studying signifies {that a} share is undervalued relative to its progress prospects.
Dividends
Vodafone grabbed the headlines earlier this 12 months when it introduced plans to rebase the dividend. This got here as no shock to many: discuss of a discount had lengthy been circulating because of the agency’s excessive money owed.
But primarily based on Metropolis forecasts, the corporate’s dividend yield for monetary 2025 nonetheless stands at 7.9%.
That is greater than double the three.5% FTSE 100 common.
Property
Lastly, Vodafone’s shares look grime low-cost relative to the worth of the agency’s property. This may be evaluated utilizing the price-to-book (P/B) ratio.
Just like the PEG ratio, a studying under 1 signifies {that a} inventory is undervalued. At this time, Vodafone’s a number of sits at a rock-bottom 0.4.
Why is Vodafone so low-cost?
The cheapness of this specific Footsie inventory is all the way down to a number of causes.
Firstly, the dimensions of Vodafone’s debt pile continues to spook traders regardless of the corporate’s determination to slice dividends. Web debt was €33.3bn on the finish of March, roughly unchanged 12 months on 12 months.
Additionally, Telecoms is a really capital-intensive enterprise. And so fears that prime debt ranges will endure — a situation that would drag on the agency’s progress plans and dividend coverage — stay an issue.
Lastly, worries over Vodafone’s troubles in Germany are additionally dampening its share value. Adjustments to legal guidelines regarding providers bundling have smacked the corporate’s efficiency in its single largest market.
Is now the time to purchase?
Nonetheless, Tuesday’s full-year replace underline the stable progress Vodafone is making to show issues round.
After a lot ready, gross sales progress lastly returned to every of the corporate’s markets within the March quarter. This, in flip, pushed natural service revenues for the complete monetary 12 months 6.3% increased. And, encouragingly, gross sales progress in Germany accelerated to 0.6% throughout quarter 4.
Gross sales at Vodafone Enterprise, a division earmarked for giant issues trying forward, additionally continues to hurry up, growing 5.4% within the closing quarter.
The corporate’s cost-reduction drive — which incorporates the slicing of 11,000 roles over three years — can also be progressing in a lift to income and money flows.
So ought to traders contemplate shopping for Vodafone shares, then? I feel the reply is sure. Following the sale of its underperforming Spanish and Italian models, and with steps to reverse its fortunes elsewhere paying off, I feel the Footsie agency’s share value may proceed heading increased.
