Image source: Vodafone Group plc
Vodafone Group‘s (LSE:VOD) share price decline on Tuesday suggests that latest financial results have once again disappointed investors. At 74.7p per share, the FTSE 100 share was 3.5% lower on the day.
In truth, today’s half-year report has suggested that things could finally be looking up at the business. Edison Group analyst Dan Ridsdale has suggested that the trading update indicated “some green shoots of a recovery.”
In particular, a sales rebound in its key German marketplace suggest the telecoms titan may be turning the corner. Is now the time for me to buy cheap Vodafone shares?
Shock German growth
Under the Telecommunications Act introduced in 2021, housing associations in Germany are no longer allowed to bundle TV services with rental contracts. This has had a significant impact upon telecoms companies in the country including Vodafone.
The UK company sources just under a third of group service revenues from the Central European territory. So understandably, new chief executive Margherita Della Valle has therefore made Germany a priority in her transformation plan for the company.
Yet few (if any) analysts were predicting an uptick in sales there just yet. Service revenues rose 1.1% during the three months to September, flipping from the 1.3% decline recorded in the June quarter. This recent uptick reflects the impact of price rises that offset a further decline in customer numbers.
Progress elsewhere
Germany wasn’t the only solidly performing region, either. Company head Della Valle commented that “we have delivered improved revenue growth in nearly all of our markets,” a result that pushed organic service revenues 4.2% higher between April and September, to €18.6bn.
Encouragingly sales at Vodafone Business — another key area in the company’s transformation strategy — also continued to speed up in the period. Service revenues rose 4.4% in the first half thanks to “growth across all customer segments and markets [bar Spain].“
The company also announced it had slashed 2,700 jobs in the first half under its plans to cull 11,000 over three years.
I’d buy Vodafone shares
So why has Vodafone’s share price failed to react to the news? Edison analyst Ridsdale suggests that this reflects uncertainty over the firm’s plans to merge its UK operations with those of Three. He says that “the shares may remain in a holding pattern until the outcome of these strategic actions becomes cleared.”
A €2.9bn increase in net debt over the first half (to €36.2bn) was a blot on the company’s half-year update. Such news increases chatter over a potential dividend cut, even though the first-half payout was kept unchanged at 4.5 euro cents per share.
But on balance this was a strong showing from the company as it begins its recovery strategy. Hints from Della Valle that the company might also sell its underperforming Italian division are another encouraging sign. Last month Vodafone agreed to sell its Spain unit for around €5bn to further streamline.
Today’s update has made me take another close look at Vodafone shares. Trading on a forward price-to-earnings (P/E) ratio of 10.5 times and carrying a 9.6% dividend yield, I think the FTSE firm represents solid all-round value. I’ll be looking to buy the company when I next have cash to invest.
