The telecoms giant Vodafone (GB:VOD) has fallen from grace since its boom in early 2000’s, taking their share price to over 400p per share. Today we are down over 80% from the once-upon-a-time highs, trading at just 78p on London Stock Exchange. But don’t let the idea of been ‘cheap’ relative to its highs fool you into thinking it must go up. Now might not be the time to buy Vodafone stock.
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In a recent press release, CEO Margherita Della Valle announced job cuts of 11,000 positions, attempting to streamline Vodafone’s business model and improve customer services, attributing Vodafone’s poor financial performance in recent years to under par customer service. Concerns amongst investors caused the stock to slide a further 4%, sending the market tumbling into pre-boom prices of 2000.
Vodafone stock really has been an underperformer not only against its rival but against the entire benchmark of which its listed. Since 2019, VOD has declined nearly 64% whilst the FTSE100 has managed to remain in positive territory, recovering well from the Covid flash sale.
VOD Fundamentals
After one glance at the income statement, it is clear investors are not interested in growth from VOD but rather their attractive dividend yield of 10.41%. However, the annual yield would not cover the loss on capital invested in recent years, fuelling the concern for long term income. With net debt of €80.4bn (TTM) looming like a dark cloud on their balance sheet, Vodafone’s ability to manage this whilst meeting their dividend obligations remains at the forefront of investors’ concerns.
Key highlights from the VOD balance sheet:
- Revenue growth has stagnated since 2019, generating €45bn in 2023 (TTM), this remains roughly the same as 2019.
- VOD P/E ratio appears historically and relatively low at only 2.1x, sector P/E is 19.2x
- Annual dividend pay-out is amongst the highest in the market at 10.24%
- DCF valuation (fair price) of 253.7p based on 5yr EBITDA (+235.7% from current price)
VOD Technical Analysis
As per a trend-following strategy, there is no argument about direction. However, upon closer observation there have been someone interesting developments. Although VOD has just dipped below a 21 year low around 81p, the market momentum is unsupportive of this break down. Relative strength and MACD indicators both show bullish divergence in the move, meaning last week’s dip is not heavily supported with bearish momentum. Looking back to 2019 (circled) a similar pattern developed, followed by a surge in price by around 35% in the proceeding weeks.
This in itself would be a far cry from a ‘Buy’ signal, however with downward pressure dwindling, it may just be enough to give Vodaphone bulls a break, at least in the short- to medium-term.
Weekly candlestick chart for VOD (MACD, RSI)
See VOD technical analysis page for a full listing of its technical analysis.
VOD Stock Risks
Macro:
The large decline in the share price could be attributed to the following.
- Growth in telecoms seems somewhat dampened perhaps by difficult customer acquisition; after all – most people are contracted to mobiles for 18months +.
- Attractive annual yields but zero growth, future dividend pay outs are a key concern for long term shareholders.
- High net debt gives little room for error.
Technical:
From a trend-following perspective, the market continues to make lower highs and lower lows, with daily moving averages remaining bearish. A recent break of structure once again gives way to the possibility of lower prices.
See VOD Risk Factors page for a full listing of the company’s risk factors.
Summary – Vodafone’s Value
VOD has gotten 8 analyst ratings in the past three months. The analyst consensus rating on VOD stock is a Moderate Buy, with a 12-month average consensus price target implying an upside of 43.7%.
The wireless telecoms giant offers up what appears to be a cheap investment with high yields, or is it just another typical ‘value trap’? Well, it doesn’t come without its risks, however a newly appointed CEO with fresh ideas and a plan to streamline Vodaphone’s operations may be the spark the company needs to fuel future growth. The attractive annual yield is only useful if the share price stabilises and there is no realised loss on capital invested.
