ii view: Vodafone still not firing on all cylinders

This mobile mammoth has fallen in value by a third over the last year and now offers a prospective dividend yield of more than 8%. Buy, sell, or hold?

Third-quarter trading update to 31 December

• Service revenue up 1.8% to €9.52 billion (Q2: +2.5%)

Guidance:

• Full-year adjusted profit expectation unchanged at between €15 billion and €15.2 billion

Interim chief executive Margherita Della Valle said:   

"Although we're continuing to target our financial guidance for the year, the recent decline in revenue in Europe shows we can do better. We need to do more for our customers by delivering quality connectivity in an easy way. We've already taken action, including simplifying our structure to give local markets full autonomy and accountability to make the best commercial decisions for their customers. In addition, we now have initiatives underway to generate around half of our €1 billion cost savings target. There is more to do and our focus is to provide a better service to our customers, become a simpler business and deliver growth."

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ii round-up:

Vodafone Group (LSE:VOD) 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 and Australia. 

It has over 300 million mobile customers across Europe and Africa. 

For a round-up of these latest results announced on 1 February, please click here. 

ii view:

Vodafone operates one of the world’s largest mobile phone networks. Its 5G operations now stretch to over 300 cities in 11 European countries. Alongside its mobile network, it also has fixed line operations in 17 countries connecting around 28 million customers and a TV platform servicing some 22 million customers. Group strategic priorities include simplifying its business portfolio, such as the recent sale of its Hungarian business, and improving efficiency.

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For investors, rising costs such as energy which trigger increases in customer charges, come at a tough time given a highly competitive environment and a cost-of-living crisis for consumers generally. A pending new chief executive could look to reset the dividend given a now generous historic yield of over 8%, while group net debt of over €45 billion (£40 billion) leaves room for improvement and compares to a stock market value of around £25 billion. 

On the upside, full-year profit guidance is maintained, with ongoing business sales potentially assisting Vodafone's finances. Hiring is underway for a new chief executive who could eventually reinvigorate group strategy, price increases should assist revenues, and the headwind of elevated energy costs has recently eased. UAE telecommunications company e&, formerly Etisalat, has also increased its stake in Vodafone, raising speculative hopes. 

Despite looking good value and potentially offering a very attractive dividend yield, Vodafone shares have been a trap for many investors over a number of years. Buying now requires a leap of faith, too, as there is always the risk of a dividend cut, although it is unlikely the payout would be removed completely. On balance, the stock remains one for investors comfortable with greater risk. 

Positives

• Geographical diversity
• Attractive dividend payment (not guaranteed)

Negatives

• Uncertain economic outlook
• Intense competition

The average rating of stock market analysts:

Strong hold