Business Overview
Vodafone is a telecommunication company providing a range of services including mobile communication, fixed communication, unified communication, internet of things (IoT), cloud hosting and security & carrier services. The company is primarily operating in two geographies, Europe and AMAP (Africa, the Middle East and the Asia Pacific) which include 25 countries. The company is based in Newbury, the United Kingdom.

Recent Developments
On March 27, 2019, Vodafone Group Plc and Movicel Angola announced their tactical consultancy pact as a part of the company's markets programme in Africa. A non-equity arrangement in which Vodafone is supposed to offer strategic and operational support in the areas like business operation, marketing and technology. On March 5, 2019, the company announced to raise £3.44 billion through the issuance of MCBs and the proceeds from bonds will be utilised for the acquisition of Liberty Global's assets in Germany. On February 25, 2019, Vodafone Group Plc and another US telecom giant AT&T have announced their association to encourage Internet of Things (IoT)  in Automotive Sector. On February 20, 2019, the group has completed the world's first 5G connection to its network.

Financial Performance – Q3 FY19 (€ million)

(Source: Company filings, LSE)

The company reported weak revenue numbers for Q3 FY19, and group revenue stood at 11 billion euro, down by 0.8 billion euro on Y-o-Y basis on account of sale of Qatar and FX headwinds. Revenue from European region was down by 5.6 per cent, and revenue from ROW was down by 11.1 per cent. The company has shown an intention to extend its existing UK network sharing agreement with Telefonica O2 to include 5G services. The company reported adjusted EBITDA growth of 3 per cent and Free Cash Flow (pre-spectrum) of 5.4 billion euro.

Gross margin reported was 29.6 per cent in FY 2018, reflecting an increase of 2.2 per cent when compared with last year data. EBITDA margin of 31.9% for FY18 stood considerably higher than the industry median of 27.1 per cent. Return on equity stood at 6.3 per cent which was remarkably higher than the industry median of 2.9 per cent. At liquidity front, the company’s current ratio position was lower than the industry median of 0.69, reflecting insufficient current assets to pay its short-term obligations. Vodafone’s Asset/Equity ratio for FY18 stood at 2.15, compared to the industry median of 2.44. Debt/Equity ratio of Vodafone was 0.59 in FY18 as compared to the industry median of 0.61 during the same period.

Valuation Methodology

*Note: All forecasted figures have been taken from Thomson Reuters.

Stock Performance – 1 Year

Daily price chart (as on March-29-19) before the market close. (Source: Thomson Reuters)

At the time of writing (as on March 29, 2019, at 08:25 AM GMT) the shares of Vodafone Plc were quoting at GBX 139.16 and added 0.28% against its previous day closing price. Shares have registered a 52w high of GBX 214.60 and a 52w low of GBX 131.00. On a monthly basis, shares have delivered a return of 3.34% which was relatively higher against the industry peer’s performance. Vodafone’s gross dividend yield stood at 9.60% which was comparatively higher than the industry and broader index FTSE 100 dividend yield. At the volume standpoint, stock’s 5-day average daily volume was 2.42% higher against the 30-day average daily volume traded on the London Stock Exchange.

Future Prospects
Vodafone Plc has a strong business model.  The company has completed 5G smartphones trails and phones will be available in the market by the mid-2019. During the trial, the company is able to make a seamless 4k video call on its network, the downloading speed on the 5G network will be ten times higher than 4G is today. Company’s revenue in the fiscal year 2019 will be slightly higher than in FY18, due to the elimination of the impact of UK handset financing under IAS 18, with no effect on free cash flow.

Conclusion
Vodafone Plc is quickly expanding its reach in the 5G space. Also, the company has become theworld's foremost telecommunications company to connect 5G smartphones with its 5G network. In the second half of 2019, the company will significantly increase its 5G reach in the European cities. Also, the strategic collaboration of the group with AT&T will enhance its reach in IoT within the automotive industry as well. Based on the above rationale and valuation done using above method, we have given a “BUY” recommendation at the closing price of GBX of 138.76 (as on March-28-19) with single-digit upside potential based on 3.75x NTM Industry Median P/CF (approx.) on FY19E Cash flow per share.
 
*The buy recommendation is valid for the current price as covered in the report as on (29th March 2019).
 

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser. Our publications are NOT a solicitation or recommendation to buy, sell or hold.