14th Nov 2023 17:01
(Alliance News) - Vodafone Group PLC's results got the thumbs down on Tuesday with questions about the sustainability of the dividend and German growth among the issues concerning analysts.
Berenberg analyst Carl Murdock-Smith said the results got "progressively worse as we worked our way down the income statement and cash flow."
Russ Mould at AJ Bell was scathing. "Vodafone's results are a checklist of everything bad about a company. It has swung to a loss-making position, revenue is down, the dividend is not growing and there is negative free cash flow."
Shares in Vodafone fell 5.2% to 73.38 pence in London on Tuesday.
The Newbury, Berkshire-based telecommunications provider said pretax profit in the six months to September 30 dived to EUR550 million from EUR1.69 billion a year prior. Revenue fell 4.3% to EUR21.94 billion from EUR22.93 billion.
The company declared an unchanged interim dividend of 4.50 euro cents per year.
Chief Executive Margherita Della Valle said: "Vodafone's transformation is progressing. Our focus on customers and simplifying our business is beginning to bear fruit, although much more needs to be done."
Murdock-Smith thinks reiterated 2023/24 financial guidance now requires a strong second half performance, while the key performance indicators remained mixed.
He pointed out management repeated previous sentiments on investment levels and debt, but did little to push back on the idea of a possible dividend cut after completion of the Vodafone Spain disposal.
"While questions continue to linger about longer-term German capex and dividend sustainability, it is hard to see Vodafone's shares materially outperforming," he said.
The big question for investors is "will the dividend be cut or not?", the analyst said.
Today, Chief Executive Margherita Della Valle said "we will do our capital allocation review at the point in time at which the Spanish deal will close", pointing to Vodafone's three capital allocation priorities of investment, balance sheet and returns.
Murdock-Smith explained Vodafone's adjusted free cash flow guidance for 2023/24 is around EUR3.3 billion, and Vodafone's dividend of EUR0.09 per share costs around EUR2.4 billion.
However, this adjusted FCF does not include spectrum or restructuring.
Vodafone's 10-year average cost of spectrum has been EUR1.2 billion per annum, while restructuring has been EUR0.3 billion per annum, he noted.
"As such, including these two factors, the dividend becomes uncovered", he said.
AJ Bell's Mould was unimpressed. "We've got the usual rhetoric from the chief executive that the turnaround story is making progress but at the end of the day it's yet another set of results that remind us how Vodafone has lost its way big time."
"Work is underway to restructure the group but don't hold your breath for rapid change," he said.
By Jeremy Cutler, Alliance News reporter
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