Vodafone (LSE:VOD) shares have performed well over the past year. They come with a strong 5.9% dividend offering too. So, after today’s results publication, is now the right time to buy Vodafone stock?
Outperforming the index
Vodafone is up 9.7% over the past 12 months. So if I had invested £1,000 a year ago, today I’d have £1,097, plus dividends, which would be about £65 taking into account the yield at the buying price.
So Vodafone has actually outperformed the FTSE 100. The UK index is up by 3.7%, which is much better than many other global indexes. The FTSE 100 contains many mining and commodity stocks that have done pretty well this year. The index also had a lower starting point.
What’s behind the improving share price?
Vodafone created some challenges for itself in 2018 with the merger of Vodafone India and Idea Cellular to form Vodafone Idea.
Executives had aimed to create a new Indian telecom leader, but impairment charges and an unfavourable exchange rate meant that they just created a huge hole on the balance sheet.
Vodafone is yet to restore its pre-merger profitability.
However, 2022 has been a better year, and this was reflected in the improving share price. Profit for its 2022 fiscal year came in at €2.6bn — that’s marginally below 2018’s €2.7bn.
There are also signs that its push into the African market and focus on higher-margin operations in Germany are starting to pay dividends.
Q1 results
Vodafone released its Q1 results for fiscal year 2023 on Monday. And there was good and bad news.
Q1 group service revenue rose by 2.5% to €9.5bn, driven by growth in the UK. Total reported group revenue was €11.3bn.
Operations in Germany — its biggest market — fell 0.5%. The company highlighted the impact of new legislation in losing broadband and TV customers.
Management said results were in line with expectation and that the company is on track to deliver financial results for the year in line with guidance.
Outlook
In the Q1 results, Vodafone’s management admitted that it was not immune to the challenges presented by the macroeconomic environment.
The cost-of-living crisis, and its equivalent outside the UK, is likely to push customers to cut non-essential subscriptions such as that for TV and seek to economise on phone bills. So that clearly could pull revenue down in the short term.
Debt could also be problematic for Vodafone. Vodafone’s net debt pile stood at €41.6bn at the last count. That’s huge. Although its worth noting that there’s no immediate liquidity crunch. Debt totalling €46bn is held in bonds with maturity dates from today until 2059.
However, in the long run, I’m fairly excited about Vodafone’s international reach and exposure to growth markets around the world. Vodafone has 184.5m mobile users in Africa and has become a regional financial services leader.
More than 52m people use its M-Pesa platform, which processed €19.9bn of transactions in the last 12 months.
So, would I buy Vodafone stock? I’m actually pretty excited by its exposure to growth markets, but I think there will be better entry points later in the year. I’m expecting to see customers cut back on non-essentials in the near term and this could hurt Vodafone.
