Picture supply: Vodafone Group plc
Vodafone’s (LSE: VOD) share value has greater than halved previously 5 years.
A part of this got here from huge shocks to the monetary markets over the interval, together with Covid and rising inflation and rates of interest. The remaining might be attributed to a lacklustre efficiency by the corporate throughout that point.
Nonetheless, such an enormous fall in value raises the query to me of whether or not the inventory is now an equally big discount.
Relative inventory valuation
My start line in answering that is to take a look at the way it charges on one of many key inventory measurements I exploit.
On the price-to-book ratio, Vodafone at the moment trades at simply 0.4 – backside of its group of opponents by a good distance. Extra particularly, Orange is at 0.9, BT Group at 1.1, Deutsche Telekom at 2.3, and Telenor at 2.8.
So it is vitally low cost on this measure.
To translate this into money phrases, I used a discounted money movement evaluation utilizing different analysts’ figures and my very own. This exhibits the Vodafone shares at 74p to be a shocking 71% undervalued.
Subsequently, the ‘fair’ worth can be £2.55 a share. Given the vagaries of the market, it’d go decrease or increased than that. Nevertheless it underlines how enormously undervalued the inventory seems.
What are the agency’s development prospects?
Finally, a agency’s share value and dividend are pushed by it rising earnings within the years forward.
In 2023, then-new CEO Margherita Della Valle set out her plans to rework Vodafone. These revolved round simplifying the enterprise, bettering buyer focus and investing in high-margin areas.
One yr on and its full-year 2024 outcomes of 14 Might confirmed development in all its markets throughout Europe and Africa. Natural service income development was 6.3% yr on yr.
Q1 of its new fiscal yr 2025 confirmed complete service income up 5.4% over the identical interval final yr. And working revenue jumped 42.9% to €1.5bn.
A key threat for Vodafone is that this reorganisation falters in some unspecified time in the future. The brand new 10-year $1bn take care of Google introduced on 8 October could also be one other threat. It might conflict with the 10-year, $1.5bn partnership Vodafone launched with Microsoft in January if not managed rigorously.
That stated, because it stands, consensus analysts’ estimates are that its earnings will develop by 22% annually to end-2027.
The massive dividend yield bonus
Final yr, Vodafone paid a dividend of 9 euro cents (fastened at 7.6p). On the present share value of 74p, this generates a stellar yield of 10.3%.
This is without doubt one of the highest returns in any FTSE index, with the FTSE 100 averaging 3.5% at the moment and the FTSE 250 at 3.3%.
£10,000 invested within the inventory at this charge – with the dividends compounded – would make £17,888 over 10 years. After 30 years on the identical foundation, it might have made £206,892 in dividend returns.
That stated, for full-year 2024 to 31 March, the agency plans to chop the dividend in half earlier than aiming to extend it once more over time.
I have already got a number of high-yield shares and am very pleased with the costs I paid for them. If I didn’t have these, although, I might purchase Vodafone right now for its good yield, excessive undervaluation and wonderful development prospects.