Vodafone Group PLC

Vodafone Group PLC (LON: VOD) is an FTSE-100 index listed telecom company having a global presence. It provides various services such as mobile communication, unified communication, fixed communication, cloud service, the internet of things, and security & carrier services.

VOD will pay an interim dividend of 4.50 Eurocents per share attributable for H1 FY22 on 04 February 2022, while the ex-dividend date was 25 November 2021.

Investment Rationale – BUY at GBX 111.68

• Encouraging Financial Performance: VOD had achieved significant growth in key financial parameters like total revenue, Adjusted EBITDAaL, and cash inflow from operating activities during H1 FY22.
• Decent Liquidity Profile: The current ratio and quick ratio remained significantly ahead of the respective industry median during H1 FY22.
• Shareholders’ Returns: The dividend yield of VOD remained significantly ahead of the Telecommunications Service Providers industry as of 29 October 2021.
• Impressive Guidance: The Company had narrowed down the top end of a range of FY22 Adjusted EBITDAaL guidance from €15.0 - €15.4 billion to €15.2 - €15.4 billion.
• Technical Indicator: From a technical standpoint, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price.

Risk Assessments

• Federal Reserve Meeting: The Fed would accelerate the tapering of asset purchases to USD 30 billion per month from USD 15 billion per month. Meanwhile, the interest rate hike would likely happen thrice in 2022.
• Interest Rate Hike: The recent interest rate hike of 0.15% to curb inflation may keep investors’ away from UK Equities.
• UK Services PMI: The UK Services PMI fell sharply to 53.2 in December 2021 from 58.5 in November 2021.
  

H1 FY22 Financial Highlights (for the six months ended 30 September 2021, as of 16 November 2021)

 (Source: LSE Website)

• Top-Line Business: The service revenue growth in Europe and Africa led to a decent increase of around 5% in total revenue to €22.5 billion during H1 FY22.
• Profitability: The Adjusted EBITDAaL increased by around 6.5% to €7.6 billion during H1 FY22, driven by revenue growth and a legal settlement in Italy.
• Net Debt: Net debt as of 30 September 2021 stood at €44.3 billion, compared to €40.5 billion as of 31 March 2021.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Conclusion

The Company had raised FY22 adjusted free cash flow guidance from at least €5.2 billion to at least €5.3 billion, boosted by the good performance in H1 FY22 and improved global macroeconomic outlook. The company is benefiting from its solid technology roadmap, accelerating customer demand, efficient capital allocation and the transformation of the operating model. However, the stock price may undergo sizeable corrections amid a 15 basis points increase in the interest rates by the Bank of England and disappointing UK GDP growth during October 2021. The stock made a 52 week High and Low of GBX 142.74 and GBX 106.30, respectively.

Based on the improved FY22 guidance, decent H1 FY22 results, and support from the valuation conducted above, we have given a “BUY” recommendation on Vodafone Group PLC at the closing market price of GBX 111.68 (as on 16 December 2021), with lower-double digit upside potential based on 15.44x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*Dividend Yield may vary as per the stock price movement.

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