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As a eager revenue investor, I’m discovering it arduous to disregard Vodafone (LSE: VOD) shares in the meanwhile.
This FTSE 100 inventory’s plummeting efficiency has left the shares providing a dividend yield of 10.8%, primarily based on final 12 months’s payout. I’m tempted by the revenue.
However the market’s harsh view of the inventory — down 40% in a 12 months — suggests to me that issues might lie forward. Ought to I take the chance? I’ve been taking a contemporary look.
A turning level?
Vodafone’s authentic imaginative and prescient was to bulk up so it may benefit from economies of scale. The group owns main networks in a lot of Europe and can also be one of many largest operators in Africa.
However whereas I just like the faster-growing African enterprise, this story simply hasn’t labored out in Europe.
The world has moved on because the early 2000s. Cellular operators face robust competitors and continuous demand for elevated knowledge capability. Vodafone is big, however its returns on capital are too low. In brief, it’s simply not worthwhile sufficient.
The necessity to proceed investing in its networks — over €8bn a 12 months extra lately — has left the group with numerous debt and a stretched dividend.
Time to interrupt up?
Metropolis analysts imagine the group may very well be price extra if it was damaged up. New chief govt Margherita Della Valle has made some early strikes in that route.
Within the UK, she’s agreed the define of a merger with rival community Three. If the deal is accepted by the regulator, the mixed enterprise would have a 30% market share and will generate value financial savings of as much as £700m a 12 months.
Vodafone has additionally agreed a roaming cope with smaller rival 1&1 in Germany and is continuous to promote down its stake within the Vantage Towers enterprise. This has raised €5.4bn, to date.
Job cuts are additionally underway — 11,000, in whole. Alongside this, Della Valle plans to provide regional divisions extra independence. I reckon these measures might assist to carry revenue margins.
Is the dividend nonetheless protected?
Vodafone’s first-quarter outcomes lined the three months to 30 June and confirmed some indicators of enchancment. Service income rose by 3.7% through the interval, excluding the affect of change charges.
In Vodafone Enterprise, which is among the extra worthwhile elements of the group, service income rose 4.5%. In Africa, service income was up 9%.
Della Valle left revenue steering for the 12 months unchanged in July’s replace. As issues stand, my sums recommend the dividend stays reasonably priced, however solely simply.
I believe there’s nonetheless some threat of a dividend lower. But when I used to be seeking to spend money on a turnaround state of affairs, I’d think about Vodafone.
Two massive trade traders have purchased stakes within the group over the past couple of years. I reckon they need to see some worth within the group’s property.
I additionally imagine that Vodafone has some good property which can be attractively valued. In my opinion, we might lastly be getting near the time when a few of that worth is launched for shareholders.
