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Boosted by a 4% rise on interim outcomes morning, the Vodafone (LSE: VOD) share worth is approaching a 40% achieve in 2025.
Within the half, complete income grew 7.3% with service income up 8.1%. And shareholder returns look good.
Loads of money
There’s sufficient money circulate for each buybacks and dividends. Vodafone has accomplished €3bn in buybacks since Could 2024, with one other €1bn nonetheless deliberate. The subsequent tranche of €500m begins now.
The boss added that “we are introducing a new progressive dividend policy, with an expected increase of 2.5% for this financial year.” The forecast yield is about 4.4%.
The corporate lifted its full-year steerage to the higher finish of its earlier ranges. Adjusted EBITDAaL — EBITDA earlier than leasing prices — ought to are available in between €11.3bn and €11.6bn. And we should always see adjusted free money circulate of €2.4bn to €2.6bn.
What’s to not like about all this? Nicely, there’s one factor…
Rising debt
Web debt at 30 September reached €25.9bn, up from €22.4bn at 31 March. Extra debt from the VodafoneThree merger apparently performed an element. And the most recent determine is definitely down from the €31.8bn recorded on the midway stage final yr.
However it’s nonetheless an enormous quantity, just about equal to the corporate’s whole market cap.
Debt could make the standard valuation measures a bit deceptive. For instance, Vodafone is on a forecast price-to-earnings (P/E) ratio of 12. However adjusting for the debt, we get an enterprise worth P/E of twice that at about 24.
Which may nonetheless be truthful worth. However it has to query the knowledge of shelling out a lot in buybacks. Nonetheless, I assume €4bn over two years wouldn’t truly make a lot dent within the debt anyway.
Reshaping
It’s two-and-a-half years since Della Valle mentioned: “Our performance has not been good enough. To consistently deliver, Vodafone must change.” On the time, extra ache appeared inevitable earlier than the hoped-for positive aspects. And 2024-25 was the crunch yr.
The corporate reported a loss per share that yr — although with optimistic adjusted earnings per share. And the dividend was slashed in half, from its earlier unsustainable ranges.
This half to date has led analysts to forecast a spell of earnings, dividends and money circulate development. It wouldn’t drop the P/E by a lot over the following couple of years. However I actually am impressed by the way in which the brand new CEO has steered the corporate within the brief time she’s held the wheel.
Purchase, or not?
I do have considerations over valuation. That debt-adjusted P/E of 24 suggests there’s a good bit of development premium constructed into the Vodafone share worth. And development forecasts, whereas optimistic, aren’t precisely stellar.
Nonetheless, one method is to neglect in regards to the debt and simply hold taking the dividends — a lot as a whole lot of BT Group shareholders do. There’s an attraction there that’s undoubtedly value contemplating.
