ii view: is reshaped Vodafone all about German growth?

First-quarter trading update to 30 June 

• Adjusted or organic service revenues up 5.4% (Q4: +7.1%)
• Total revenues up 2.8% to €9.04 billion
• German organic service revenue fell 1.5% (Q4: +0.6%)
• Adjusted profit (EBITDA) up 2.1% to €2.68 billion

Guidance:

• Continues to expects 2025 adjusted profit (EBITDA) unchanged on 2024 at €11 billion
• Plans to halve the dividend for the year ahead to 4.5 eurocents per share, but with ambition to grow over time
• Pursuing €4 billion of share buybacks following business sales

Chief executive Margherita Della Valle said:   

"Our performance in the first quarter is consistent with our full year guidance, which we reiterate today. We continue to deliver strong revenue growth in Africa and Turkey, whilst lower inflation is slowing revenue growth in Europe and accelerating Group EBITDAaL growth. 

"During the last few months, we have announced the final step in reducing our stake in Vantage Towers to 50% for €1.3 billion and commenced our €2 billion share buyback programme following the sale of Spain. 

"We continue to progress our transactions in Italy and the UK as well as the broader transformation of Vodafone, focused on customer experience, Business growth and operational execution in Germany. The actions we are taking now will deliver improved performance and underpin the turnaround of Vodafone."

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Top UK Shares

ii round-up:

Vodafone Group (LSE:VOD) operates both mobile phone and fixed broadband networks.

Operating in Europe and Africa and following business sales in Spain and Italy, key countries of operation now include Germany, the UK, Turkey, and South Africa. 

For a round-up of these latest results announced on 25 July, please click here. 

ii view:

Conducting the first mobile phone call ever in the UK in 1985, Vodafone today provides mobile and fixed line broadband services to over 300 million customers in 15 different countries. 5G mobile provision is available in over 230 European cities, with its fast broadband network passing 52 million European homes. Fast data broadband provision also makes it Europe’s second largest TV platform with around 17 million such customers. 

Germany continues to generate its biggest chunk of adjusted profit at 46% during its last fiscal year, with the UK at 13%, other European countries combined and including Portugal and Ireland at 14%, Africa 22%, and Turkey 5%. 

For investors, previous German law changes to end bulk TV contracts to multi-dwelling units (MDU) continues to pressure service revenue at its core German market. The proposed merger of Vodafone’s UK phone operations with those of CK Hutchison’s Three UK operations is subject to an in-depth competition probe. The sale of Italian and Spanish businesses leaves it less geographically diverse. The dividend payment is again being reduced given business sales, while group net debt of €33.2 billion (£28 billion) as of late March compares to a stock market value of £19.6 billion.

• Why the UK rally has legs - and what we’re buying
• The shares and sectors we are backing under Labour
• Is inflation beaten? The impact on stocks and bonds explained

To the upside, a major transformation of the business has been undertaken, including asset sales in Italy and Spain and the proposed strengthening of its UK mobile business. Management focus now includes increased investment in customer experience and growing business-related sales. A €4 billion share buyback out to 2026 has seen around 10 million shares bought daily, while UAE telecommunications company e& continues to hold a sizeable shareholding in Vodafone, potentially applying further pressure on management for change and improvement. 

For now, declining revenue in its key German market along with the ongoing UK investigation into its UK phone merger may leave many investors sidelined. That said, a rejigged business focused on growth opportunities and strong cashflows which underpin a forecast dividend yield of over 5% does at least reward shareholders for their patience. 

Positives

• Business and geographical diversity
• Ongoing management transformation programme

Negatives

• Intense competition
• Pending cut to the dividend payment

The average rating of stock market analysts:

Strong hold