Vodafone Group (LSE: VOD) (NASDAQ: VOD.US) remains the subject of takeover speculation, but it would be unwise to buy the firm on this basis alone so do the telecom giants shares look attractive at todays price?
Ive taken a closer look at Vodafones performance and valuation to find out more.
Valuation
Lets start with the basics: how is Vodafone valued against its past performance, and the markets expectations of future performance?
|
P/E ratio |
Current value |
|
P/E using 5-year average adjusted earnings per share |
5.9 |
|
2-year average forecast P/E |
30.5 |
Source: Company reports, consensus forecasts
Vodafones dramatic shrinkage over the last year is clear from these figures the sale of the Verizon Wireless business has removed a large chunk of Vodafones earnings.
The firm has a substantial hill to climb to prove that it can reinvest the Verizon proceeds successfully and generate new growth, but in the meantime Vodafone has promised to maintain its dividend, which currently offers a prospective yield of 5.6%.
Do the numbers stack up?
At this point, Id normally look at a companys historic growth, but in Vodafones case, I feel that so much has changed over the last year with the sale of Verizon Wireless and two sizeable acquisitions in Europe that a historic comparison is of limited value.
Instead, Im going to take a closer look at the latest company and market forecasts for Vodafone, which should give us some idea of what to expect over the remainder of this year:
|
2014/15 forecast |
Value |
|
Revenue |
42,341m |
|
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) |
11.4bn 11.9bn |
|
Post-tax profit |
1.74bn |
|
Dividend |
11.3p |
Source: Consensus forecasts/Vodafone guidance
Vodafones dividend is uncovered by earnings, but the firm can afford to support this for a limited time, so I dont see this as an immediate concern.
Of more concern is how quickly Vodafones profit margins and profits will rise. The companys forecast for EBITDA of 11.4-11.9bn suggests, based on previous years, that adjusted operating profit will be in the region of 5bn, giving an operating margin of about 12%.
Im happy with that, but the second element will be to see how fast new earnings feed through from Vodafones Project Spring network upgrade programme, plus this years two big acquisitions, German cable operator Kabel Deutschland and Spains Ono.
For more information on these elements, well have to wait for the firms half-year results in November or more likely, next years final results in May.
Buy Vodafone?
As a Vodafone shareholder, my plan is to hold my position and enjoy the dividend income. However, I dont plan to buy any more Vodafone shares until I see some signs that the companys growth strategy will come good.
Ultimately, whether Vodafone is a buy or sell is a personal decision. However, Vodafone’s dividend remains appealing: reinvesting dividends is one of the most reliable ways to outperform the wider market.
Indeed, dividend reinvestment is just one of the seven market-beating tips revealed by top Motley Fool analyst Mark Rogers, in a brand-new wealth report, “How You Could Retire Seriously Rich“.
The report explains how beating the market may be easier than you think, with a simple, seven-step guide.
To get your FREE, no-obligation copy of this new report today, click here now.
Roland Headowns shares in Vodafone Grouop. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
