Vodafone has a market capitalisation of nearly £44bn but has an enterprise value approaching £70bn. So on the face of it, for every pound you spend on shares you get one pound fifty worth of value.
They have managed to spend £81bn in the last 5 years investing in their network and spectrum and yet the company is only worth half that.
One issue is traditionally the value of goodwill on the balance sheet which currently stands at about £26bn. It has been a lot higher. Even if you think it is valueless which is a big ask – you are still getting a lot of value for your buck.
Could the problem be profitability? They are making about £4bn operating profit and £2.6bn net. So the p/e is still a pretty high 16.
The markets don’t like them because they perceive nothing but spending with low returns.
Vodafone’s Chairman in their 2018 annual report says “We have made further progress this year on our ambition to be a converged communications leader in all of our European markets, a mobile data leader in Africa and India, and an Enterprise leader internationally. These strategically strong positions will enhance our ability to achieve our purpose as a Group – which is to connect everybody to live a better today and build a better tomorrow”. This is hardly an inspiring simple vision.
A more compelling vision would be around full convergence of all data streams with content. This would give users a reason to want Vodafone – rather than Vodafone just being a data pipe- and an expensive one at that. Vodafone don’t buy this vision.
Currently, the reason for negative sentiment is surrounding Vodafone’s deal to buy Liberty Global's cable networks in Germany and Eastern Europe. This does improve scale as the firm fights Deutsche Telekom but also leaves it with a burden of €50 billion in debt. It also increases the firm’s exposure to the lower-growth markets of Europe. It has managed to gain some market share in Italy and Spain.
The newly appointed chief exec, Nick Read, is hardly a visionary but change at the top is always viewed with some scepticism.
The market sentiment is summed up like this, “While telco CEOs remain positive about revenue growth, viewing client segmentation, increased network quality and the provision of value-added services as key ingredients to success, we are more sceptical given the limited returns on hefty fibre network investments and pressure in the B2B segment," says Carlos Winzer, Senior Vice President at Moody's.
Vodafone’s focus on distributing content rather than owning it is at least one with limited risk. However, this does drive the perception of a low growth company competing in very competitive markets by investing heavily in infrastructure. Vodafone should be regarded as a high tech company in exciting times where data usage is growing exponentially and they are delivering the interconnected vision. Sadly, they don’t see this and neither does the market and that is why no one loves Vodafone.