ii view: Vodafone profits rise but investors are unimpressed

A new major shareholder and a dividend yield of over 6%. We assess prospects.

Full-year results to 31 March 2022

• Revenue up 4% to €45.58 billion
• Adjusted profit (EBITDA) up 5.7% to €15.2 billion
• Final dividend of 4.5 eurocents per share
• Total dividend for the year unchanged at 9 euro cents per share
• Net debt up 2.6% to €41.58 billion

Guidance:

• Expects full-year adjusted profit of between €15 billion and €15.5 billion

Chief executive Nick Read said:

“We delivered a good financial performance in the year with growth in revenues, profits and cash flows, in line with our medium-term financial ambitions. Whilst we are not immune to the macroeconomic challenges in Europe and Africa, we are positioned well to manage them and we expect to deliver a resilient financial performance in the year ahead."

ii round-up:

Mobile phone network operator Vodafone Group (LSE:VOD) today reported full-year gains in both revenue and profits, but offered caution for the year ahead given the expected impact of elevated inflation. 

Adjusted profit for the year to the end of March climbed by over 5% to €15.2 billion as revenue improved 4% year-over-year. However, management’s profit estimate for the year ahead of between €15 billion to €15.5 billion fellow marginally below City forecasts. 

Vodafone shares retreated by just over 1% in early UK trading, having gained by close to 4% year-to-date coming into the results. Shares for fellow FTSE 100 telecom companies BT Group (LSE:BT.A) and Airtel Africa (LSE:AAF) are both up around 5% in 2022. 

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Earlier this week Vodafone confirmed UAE telecoms company e& as its biggest shareholder after it acquired a near 10% stake in the company, worth £3.3 billion.

Vodafone has been pursuing renewed strategic priorities since 2018, including business sales to simplify its portfolio. 

European and African mobile phone customers both rose over the year to reach 66.4 million and 184.5 million respectively. African mobile data users also rose to 89.9 million, although European fixed line broadband customers stayed flat at 25.6 million.

e& announced that it had taken the share stake to gain significant exposure to a world leader in connectivity and digital services. It does not intend to launch a takeover bid. A final dividend of 4.5 eurocents leaves the payment for the full year unchanged at 9 eurocents per share.  

ii view:

Vodafone Group operates both mobile phone and fixed broadband networks. It has fully owned operations in Germany, Italy, the UK, Spain and South Africa, with further joint ventures in markets such as the Netherlands with Liberty Global and in Australia with CK Hutchison. In Africa, it is using its data network to offer mobile financial services via its M-Pesa platform. 

It previously completed the first phase of its strategy to reshape Vodafone, including selling businesses such as its New Zealand operations and the stock market float of its Vantage Towers (XETRA:VTWR) business in early 2021. The next phase of its strategy focuses on three customer commitments and three enabling strategies. These include having the best connectivity products and services, simplifying the business, and being the most efficient operator and building leading gigabit networks. 

For investors, outlook caution in relation to elevated inflation cannot be ignored. Some slowing in quarterly service revenue growth is also noteworthy, while competition across the industry remains intense. Group net debt of over €40 billion also leaves room for improvement.

On the upside, a major new shareholder is likely to add to pressure for corporate change over the longer term. Rumours of a possible tie-up with rival network operator Three have also done the rounds, while a historic and estimated future dividend yield of over 6% cannot be ignored in a low, if rising, interest rate environment. In all, and with the consensus analyst estimate of fair value stood at over 160p per share, investors are being paid to wait until Vodafone fixes its problems and delivers on its strategy.   

Positives

• Geographical diversity
• Attractive dividend payment (not guaranteed)

Negatives

• Intense competition
• Elevated net debt

The average rating of stock market analysts:

Buy