It’s time to chat about the Vodafone (LSE: VOD) share price. The British telecommunications group has been on my radar for quite a while now.
Now, I’m no fortune teller, but I’ve got a few ideas about where these shares might be heading by the time we’re popping champagne on New Year’s Eve.
Up, up and away?
The company’s share price has had its fair share of ups and downs in recent years. But hey, who hasn’t?
Shares in the telecoms giant are down more than 50% in the last five years. At 69p per share as I write, long-term shareholders may be losing patience.
I’m quietly hopeful that things can turn around in 2024. After all, Vodafone is a big fish in the telecoms game. The group’s £19bn market capitalisation is nearly twice that of rival BT Group’s sizeable £10bn valuation.
I normally find relative value metrics to be quite helpful. Vodafone has a price-to-earnings (P/E) ratio of 2.1 and an 11.2% dividend yield. Given the recent share price decline, however, all I can say is beware the value trap.
The “earnings” figure used for this is a backward-looking measure from 31 March 2023. It also includes some hefty one-off gains from assets sales. Stripping out these amounts gives an adjusted profit after tax of €2.61bn (£2.26bn) and a revised P/E ratio of 8.3. Compared to BT’s 5.8 times earnings, Vodafone looks a touch expensive right now.
The company is also set to slash its FY25 dividend in half to 4.5 euro cents. It’s all part of CEO Margherita Della Valle’s efforts to right the ship.
Culture change and trimming non-core businesses like Vodafone Italia are at the top of the list. It’s a big task, but one that could deliver the sort of returns shareholders are after.
Make or break?
The next item pencilled on my calendar is Vodafone’s FY24 results in May. I’d expect to see good progress on the restructure and a clear pathway for growth going forward. This would give me confidence in the management team and its ability to deliver future returns.
On the other hand, signs of ongoing struggles or a deviation from its core business could spell trouble and send the share price lower.
My verdict
I really like some of the shrewd decisions being made by the group recently. Vodafone also has a strong position and brand name in an essential industry. That gives it the opportunity to really flex its muscle and be a leader in growth markets like Internet of Things (IoT) and 5G. One of the things I really like about the telecoms industry is the potential returns to scale for the big boys.
Now, building these networks and products isn’t cheap. There are many costs to establish necessary infrastructure and the risk that it is inferior to either competitors or superseded by new technologies.
I think if we see promising results in May, the Vodafone share price can finish the year higher. After all, the stock was changing hands for 139p as recently as February 2022.
While I’m not that bullish, I wouldn’t be surprised to see a year-end price in the 75p to 85p range. This isn’t a buy for me right now, but I’ll set a reminder to reassess in May.
