The Vodafone (LSE:VOD) share price dropped by 2.6% after it announced its third-quarter earnings for 2024 yesterday (5 February).
On the face of it, the results didn’t appear great, with lacklustre reported revenue that declined by 2.3% year on year, from €11.64bn to €11.37bn.
However, adjusting for foreign exchange fluctuations and the hyperinflation in Turkey, organic growth was much better at 4.2%.
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Does this mean the shares are worth considering?
The opportunities
Maybe. Vodafone’s UK business is continuing to grow reasonably well. It grew revenue by 5.2% this quarter, continuing its positive run since the start of 2023. It was also growing before this but is now doing so at a faster pace. This business will merge with Three soon, but Vodafone will still own a controlling stake of 51% of the combined business.
Plus its business in Turkey isn’t doing so badly either. It almost doubled its revenue, growing by 90.4% to €532m. Yes, inflation in Turkey is ridiculously high (as much as 64.8% in December 2023), but this growth still easily outpaces that.
Finally, I’ve saved the best for last. Vodacom, its business in Africa, is thriving. It grew by 8.8% this quarter, continuing its strong growth in the region, which has been in the high single-digits for a while now.
It’s also worth pointing out that after Germany, Vodacom and its business in the UK are its second and third-highest sources of revenue, bringing in €1.93bn and €1.74bn, respectively. Therefore, it’s great that it’s growing in those markets at a decent pace.
The problems
The shares have been in trouble for a while. They’ve tumbled by 76% in the last 10 years and that was clearly deserved because of the poor performance and management of the company over that period.
There are small signs of a turnaround with Germany, its most prominent business returning to growth. This is the second consecutive quarter of revenue rising, following six quarters in a row of it falling. But this time it was only 0.3%, which is also a significant deceleration from the 1.1% growth in the second quarter. The turnaround doesn’t look that effective anymore.
Furthermore, with regulatory changes in Germany kicking in this year, it could add uncertainty to future growth in the region.
Moreover, its Spanish and Italian businesses continue to disappoint, with declining revenues in those countries for quite some time now. It recently agreed to sell the Spanish division but is struggling to sell off the Italian segment.
Now what?
Vodafone’s earnings are mixed. Key regions in Europe are still struggling. However, other areas are growing well. The UK, Turkey, and Vodacom are continuing to perform strongly and represent a significant share of its revenue mix.
Overall, it’s doing okay. Not great, but not too badly either. But looking at its valuation, its shares have a price-to-earnings (P/E) ratio of just 2. This is ridiculously cheap.
In my opinion, such a P/E ratio is reserved for companies in significant decline. I don’t think Vodafone is close to that right now. It’s stabilised revenue in its key market of Germany, and as mentioned has meaningful growth in other areas.
Therefore, I believe investors could have a great opportunity if they consider the shares.
