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Close to a 52-week low, are Vodafone shares the ultimate value stock?

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Vodafone (LSE:VOD) shares have fallen 40% over the past 12 months. On 26 June 2023, they closed at a 12-month low of 70p. In fact, the shares have never finished a day lower.

Today they are changing hands for a little more — just under 71p — but they haven’t been above £1 since February 2023.

The company was once the most valuable in the FTSE 100, but it’s now only the 28th largest.

A trap?

It would be a mistake to buy a stock solely because its share price is close to an all-time low. Apparently rational investors have collectively made a judgement that the company is currently worth ‘only’ £19.1bn.

And the collapse in the company’s share price means its stock is presently expected to yield over 11% in 2023, the highest in the FTSE 100.

But, as attractive as this might sound, there’s little point buying now if the dividend is likely to be cut significantly.

Vodafone might be the ultimate value trap. Is it a stock that appears on paper to be undervalued, but isn’t?

Expert opinion

It’s fortunate that to help answer this question, there are 15 experts available who have analysed the company’s recent performance, and have provided insight into what its prospects might be for the next two financial years.

In terms of adjusted earnings per share, the mean forecast for 2024 is 8.91 cents. This is significantly lower than the actual figure of 11.45 cents made during the year ended 31 March 2023.

It implies a price-to-earnings (P/E) ratio of less than eight. Although well below the FTSE 100 average, it’s still higher than that of BT (6) and the same as Airtel Africa, the two other telecoms companies in the index.

On this metric, it appears that Vodafone’s shares are overvalued.

But Deutsche Telekom, Europe’s largest communications provider, has a P/E ratio of 11.5.

The consensus view for 2024 is that the present dividend is unsustainable, and is likely to be cut from 9 cents to 7.8 cents per share. However, this would still imply a yield of over 9%, almost twice the FTSE 100 average.

One expert is expecting an increase in the dividend to 9.38 cents, with the most pessimistic forecasting 4.5 cents.

But, despite its woes, Vodafone hasn’t cut its payout since 2018.

Measure 2023 actual 2024 mean forecast 2025 mean forecast
Group revenue (€bn) 45.7 43.2 43.5
Adjusted earnings per share (€ cents) 11.45 8.91 9.90
Dividend per share (€ cents) 9.00 7.80 7.93
Source: company disclosures


It appears to me that Vodafone’s shares are currently fairly valued.

Revenue is stagnant, earnings are falling, and borrowings are high. That’s why the share price is in the doldrums.

But I don’t think it takes into account the changes that are being enacted by the group’s new chief executive officer, Margherita Della Valle.

Within six months of being appointed, she announced plans to cut 10% of the workforce, embarked on a plan to simplify the company’s corporate structure to improve its competitiveness, concluded the merger of its UK operations with Three, and established a strategic partnership with the United Arab Emirates’ largest telecoms provider.

I like her style and approach.

For these reasons, I believe now would be a good time to buy Vodafone’s shares. I think over the long term, they will outperform the wider market. And surely that’s the best measure of a value share?

The post Close to a 52-week low, are Vodafone shares the ultimate value stock? appeared first on The Motley Fool UK.

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James Beard has positions in Vodafone Group Public. The Motley Fool UK has recommended Airtel Africa Plc and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.