A slowdown in key markets, a huge debt pile and a management shake-up have all weighed on Vodafone’s share price. Now the telecoms giant has entered into a strategic partnership with its biggest investors. Executives at Vodafone will be hoping to dial in some positive news when it publishes full-year results for its fiscal year 2023 on Tuesday.
Vodafone’s [VOD.L] share price reception has been deteriorating for a while now. Over the 12-month period the stock is down over 23%, closing Friday 12 May at 89.86p. Looking at the five-year period, Vodafone’s shares have slumped over 57%. Year-to-date things haven’t been as bad, with the stock having rung up gains of over 6%; investors responded well to a change in leadership at the end of last year.
But can investors expect more upside from Vodafone’s share price? A lot will depend on whether new chief executive Margherita Della Valle can streamline business and arrest a decline in growth in key markets.
What to look out for in Vodafone’s full-year results
Having been installed on an interim basis after the departure of Nick Read in December, Margherita Della Valle secured the top job on a permanent basis last month. Vodafone’s chair, Jean-François van Boxmeer, highlighted that Della Valle has the “pace and decisiveness to begin the necessary transformation of Vodafone”.
Della Valle’s long-term vision for transforming Vodafone will be under the microscope on Tuesday, especially when it comes to turning around declining growth in Europe.
In the third quarter, Vodafone reported organic revenue growth of 2.7% year-on-year to €11.6bn, with service revenue up 1.8% to €9.5bn. But sales dipped in Germany, Italy and Spain.
Germany, which represents 30% of overall group revenue, saw a 1.8% year-on-year decline in revenue. This marked the third straight quarter of declines in the region, as lower roaming growth and comparisons to the previous year ate into earnings. Revenue in Italy and Spain was down 3.3% and 8.7%, respectively.
“Although we’re continuing to target our financial guidance for the year, the recent decline in revenue in Europe shows we can do better,” said Della Valle. The Vodafone CEO added initiatives already underway would generate around half of the company’s €1bn cost-savings target.
Vodafone said it is targeting a full-year adjusted EBITDA of between €15bn and €15.2bn.
e& takes a seat on Vodafone’s board
Vodafone’s full-year results are being published against the background of a new strategic partnership with its main investor, e&. As part of the partnership, the two companies will work together to explore cross-border digital services, share best practices on procurements, and work together on a technology roadmap. e&’s chief executive officer Hatem Dowidar will also take a seat on the Vodafone board.
Reports had emerged last month that e&, the Abu Dhabi-based telecommunications provider, had opened discussions with Vodafone on the make-up of its board. This potentially paves the way for a more hands-on approach over Vodafone’s long-term direction. Clearly e& is actively interested in Vodafone, having amassed a 14.6% stake in the company over the past year.
Robert Grindle, head of European TMT research at Deutsche Bank, believes the sudden interest could be around a potential sale of Vodafone’s African business. Africa has delivered consistent growth for Vodafone, with revenue up 3.5% across the continent for the third quarter. This was driven by high data usage and demand for financial service add-ons. A sale would go some way to alleviating Vodafone’s hefty debt pile, which stood at €45.5bn at the last count.
Analysts see upside in Vodafone’s share price
On 5 May analysts at Berenberg trimmed their price target on Vodafone to 95p from 100p, while maintaining their ‘hold’ rating. The analysts noted that the appointment of Della Valle reduced the risk of a dividend cut. However, they said that Vodafone Italy’s €2.5bn of goodwill could be written off in this week’s full-year results.
At the start of March, Robert Grindle cut his price target on Vodafone to 185p from 195p, saying that the “underlying value is compelling”, but it will take time for business trends to improve. Still, Grindle’s revised target would deliver a near 108% upside on Friday’s close.
Vodafone’s share price has a 113.21p 12-month median price target from analysts covering the stock. Hitting this would see a 26% upside on Friday’s close.