Vodafone: Revenue Trends Improving, but Still Negative Growth in Most European Markets

Vodafone’s VOD start to the year was characterized by slight improvements in its service revenue growth compared with last quarter, although most of its largest European markets continue to see low-single-digit organic declines. Group revenue increased by 3.7% organically, although this was a 4.2% decline in reported terms, mainly due to foreign-exchange headwinds in Turkey and Africa. In Germany (30% of sales) service revenue declined by 1.3% (2.8% decline last quarter) as the operator continued to lose some customers after changes in German regulations. This was partially offset by price increases in broadband. Unsurprisingly, Italy and Spain saw 1.6% and 3.0% organic declines, given the intense competition in the mobile market, which we have seen for many years. Although Vodafone is not having its best moment this is considered in our forecast, which remains in line with company-compiled consensus for fiscal 2024, but more conservative in the medium term. We maintain our GBX 125 fair value estimate.

Vodafone has increased prices in most of its markets to compensate for inflationary effects. In our view, these price actions are more effective in some geographies than others. In the U.K. where all mobile operators have increased prices, we believe it’s easier to retain customers as switching operators results in limited cost savings. In markets like Spain or Italy it’s more challenging given the large number of cheap options. This is highlighted by Vodafone’s revenue declines in these geographies despite price increases. One third of the 11,000 job reductions that Vodafone wants to make over the next three years have already begun, which we view favorably.