The decline in the value of Vodafone (LSE:VOD) shares has been a long and painful one. Once the UK’s largest listed company, it now ranks 28th.
The company has lost half its value since December 2019.
A share price in apparently long-term decline could be a warning sign of fundamental operational issues, an indication that investors have concerns about a company’s potential, or evidence of an unloved stock.
In the case of Vodafone, I think it’s all three.
For its 2023 financial year, the company’s revenue was only 0.2% higher than in 2022. In addition to stagnating sales, its debt was over five times its pre-tax profit. And numerous management changes have failed to deliver.
And so, on 14 June 2023, the company announced that it plans to merge its UK operations with Three, a subsidiary of CK Hutchinson Holdings, a multinational conglomerate headquartered in Hong Kong.
The new company will become the UK’s largest mobile operator.
| Mobile connections market share | % |
| Virgin Media O2 | 28 |
| EE | 26 |
| Vodafone | 20 |
| Three | 10 |
| Others | 16 |
| Total | 100 |
A damp squib
At 11am, just before the press release was issued, Vodafone’s share price was 72.14p.
Half an hour later, it had risen by 4.5% to 75.38p. At the close, after the news of the deal had been digested, it was 72.84p.
Overall, a disappointingly muted response to what was hailed by the company’s newly appointed chief executive, Margherita Della Valle, as “transformative“.
She also boasted that the merger was “great for customers, great for the country and great for competition“.
And therein lies the problem.
The proposed deal will inevitably be investigated by the Competition and Markets Authority. That’s why it has to be promoted as being good for consumers.
But I think it was given a lukewarm reception because there were few details given as to what it means for investors. Until I know more, I cannot determine whether it’s going to be good for the stock.
Reasons to be optimistic
However, I believe there are other reasons to buy shares in the telecoms giant.
Firstly, the stock is presently yielding over 10%. This assumes that the dividend of €0.09 per share, which has been paid during each of the past five years, is repeated.
Of course, this isn’t guaranteed. But I think the company will do everything it can to maintain the dividend. Otherwise the board will further lose the confidence of its owners.
Secondly, the company’s largest shareholder, e&, now has a seat on the board.
This mightn’t seem newsworthy but e& (formerly Etisalat) is based in the United Arab Emirates and has an impressive record of growing earnings in the Middle East and Africa. I’m hoping this expertise can help bring about the required changes closer to home.
Finally, never underestimate the power of the Vodafone brand. Kantar has voted it the UK’s most valuable for the last five years. Most recently, it said it was worth £25.96bn — 30% more than the company’s current market cap.
A strong brand creates loyalty leading to repeat business.
Critics will say that previous turnaround plans have failed. But I remain hopeful that the current management team will deliver.
I already own shares in the company. But if I didn’t, I’d be looking to take advantage of the struggling share price and include the stock in my portfolio.
