Key Morningstar Metrics for Vodafone Group
- : GBX 130Fair Value Estimate
- : ★★★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
What We Thought of Vodafone Group’s Earnings
Vodafone’s VOD first-quarter results were positive, with adjusted EBITDAaL up 6.2% year on year and management guiding toward the higher end of its EUR 13.0 billion-EUR 13.3 billion adjusted EBITDAaL guidance.
Why it matters: We were surprised not to receive any update on Vodafone’s new anchor shareholder Vega, owned by Xavier Niel, which was the basis for our recent fair value estimate increase to GBX 130—on the assumption that Niel’s team will help drive further cost and operational efficiencies. With no earnings call this quarter, it remains unclear whether there has been any initial contact between Niel’s team and the board of directors and management.
- Back in May, Vodafone launched a EUR 1 billion net cost-reduction program. The next quarterly results in September should provide the first window into how absolute cost reductions are progressing, as Vodafone just reports its full financials twice a year. In our opinion, cost reductions have been underwhelming over the past three years.
The bottom line: We maintain our GBX 130 fair value estimate per share for no-moat Vodafone. Shares rose 4% to GBX 119 following the results and look slightly undervalued.
- Our GBX 130 fair value estimate implies a 4.4 times forward EBITDAaL multiple. While Vodafone arguably deserves a below-average multiple versus peers given its conglomerate nature, the cheap valuation looks undemanding if operational change would occur. Should Xavier Niel’s team become operationally involved and drive additional cost-cutting beyond Vodafone’s current efficiency program, we see further upside to our fair value estimate.
- For a long overview on our previous update, please read our note, “Vodafone: Xavier Niel Is the Catalyst We’ve Looked For; FVE Raised to GBX 130; Shares Undervalued.”
