Yesterday (4 February), wasn’t a superb day for these with a vested curiosity within the Vodafone (LSE:VOD) share price.

The worth of the telecoms big fell 7%. This was regardless of it saying a 5% improve in income for the quarter ended 31 December 2024 (Q3), in comparison with the identical interval a yr in the past.

Encouragingly, the development in gross sales has helped the corporate’s backside line. Trying again to the beginning of its 2024 monetary yr, the quarter noticed its highest earnings. Additionally, there was a web improve of 23,000 cell clients throughout the interval.

This meant the corporate was capable of reiterate that it was on the right track to report EBITDAaL (earnings earlier than curiosity, tax, depreciation and amortisation, after leases) — its most well-liked measure of profitability — of “circa €11bn” (£9.15m) for the complete yr (FY25).

That is according to the forecasts of the 12 analysts protecting the inventory. Their vary of estimates is for FY25 earnings of €10.94bn-€11.28bn, with a median of €11.02bn.

On the face of it, the response of traders is shocking to me.

Digging deeper

However income in Germany remains to be falling. In 2024, the federal government outlawed the sale of bulk pay-TV contracts in condominium blocks. This implies residents at the moment are allowed to decide on their very own suppliers.

Because of this, Vodafone misplaced over half of the shoppers affected. Though this was anticipated, excluding these impacted by the legislation change, service income was nonetheless down 2.6%.

That is clearly a priority provided that 34% of the group’s income comes from the nation.

After which there’s the perennial downside of Vodafone’s debt. Telecoms infrastructure doesn’t come low-cost, which implies the group’s needed to borrow monumental sums.

To deal with the difficulty, the corporate’s been promoting numerous divisions and non-core belongings to generate some funds to assist scale back its degree of borrowings.

The sale of its Italian enterprise introduced in €8bn of money. Of this quantity, €2bn is predicted for use for share buybacks and the remainder for paying down its debt. There was no point out of present web debt ranges within the Q3 announcement. This may also clarify the obvious investor nervousness.

Irritating instances

Nevertheless, though I acknowledge these issues, I wrestle to grasp the apathy in the direction of the corporate. It’s not a current phenomenon. For a number of years now, the share price has been falling. It’s exhausting to consider that Vodafone was as soon as the UK’s most dear listed firm.

It exited Italy for 7.6 instances EBITDAaL. On this foundation, Vodafone must be valued at €83.6bn (£69.5bn). However companies are normally offered with none debt. At 30 September 2024, the group had web debt of €31.8bn (£26.4bn). Take away this and I believe a valuation of €51.8bn (£43.1bn) might be justified.

That’s a 155% premium to its present inventory market valuation.

With a yield of 5.6%, the dividend’s not dangerous both — the common for the FTSE 100 is 3.6%. Though the 50% reduce in 2024 is a stark reminder that payouts are by no means assured.

Trying to the longer term, regulatory approval has been obtained to merge its home operations with Three. Curiously, excluding Türkiye — the place income was helped by rampant price inflation — the UK market noticed the most important improve in Q3 gross sales.

For these causes, I believe Vodafone’s a inventory that worth traders ought to take into account shopping for.