The Vodafone (LSE: VOD) share price gained 3.4% Thursday (24 July), first-quarter earnings day, after a “good start to the year“.
Vodafone shares have been gaining, up more than 35% since April’s 52-week low. But they’re still down nearly 65% over the past 10 years.
In May, CEO Margherita Della Valle spoke of “strong operational improvements across the business” on the back of her new vision put in place a year previously.
Key progress
With Q1 results, the boss said: “Vodafone is now well positioned for multi-year growth across both Europe and Africa.“
Service revenue in Germany dipped 3.2% compared to a 6% fall in Q4. But it was due to a TV law change and was otherwise essentially flat. Halting the decline in Germany was a key part of Vodafone’s strategy, and it sounds like it’s starting to come good.
In the UK, the merger with Three is now complete. So going forward, we should get a clearer picture of the performance of the combined networks.
Overall, total revenue rose 3.9% to €9.4bn, with service revenue up 5.3% to €7.9bn. The board reiterated its full-year 2026 guidance for €11.3bn to €11.6bn adjusted EBITDAaL — EBITDA adjusted for some lease-related factors — and adjusted free cash flow between €2.4bn and €2.6bn.
Shareholder returns
My biggest past criticism of Vodafone targeted the huge dividends it insisted on paying. I just didn’t see them as sustainable, as the share price continued its apparently inexorable slide. To my mind, that was destroying long-term shareholder value for the sake of filling pockets in the short term.
It had to stop. And thankfully it did, with the annual handout slashed for 2024/25 onwards as part of Della Valle’s recovery plan. We’re looking at a forecast 4.4% for the current year, which I still rate as pretty decent.
Shareholder returns don’t stop there, mind. Along with these results, the company launched a new share buyback programme of up to €500m, which has already commenced.
In the circumstances, I think this is a better way to return cash than through higher dividends. There’s no repeat implied, and the completion of a buyback doesn’t have the same negative connotations as a dividend cut.
Back on the buy list?
I’m genuinely impressed by the progress I’m seeing. So does that mean I’ll buy some shares now? No, for one simple reason.
It’s the net debt figure of €22.4bn at 31 March 2025. It was down from €33.2bn a year previously after the disposal of Vodafone Spain and Vodafone Italy, which is certainly welcome. But, translating to £19.5bn, it’s still only a bit short of Vodafone’s entire market cap of £20.9bn.
If we adjust valuation measures for it, we could almost double the forecast price-to-earnings (P/E) ratio of 13 to 25. With forecasts showing earnings growth in the next few years, that might still be fine.
Investors who can look past the debt and at the attractive potential cash flow and shareholder returns, I think Vodafone should be a consideration. But after seeing the damage that high debt can do in a downturn — like the 2020 stock market crash — I just won’t buy highly-indebted companies.
