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It’s hard to believe that Vodafone (LSE:VOD) shares were once changing hands for nearly £5.50 just after the turn of the millennium. Today, the FTSE 100 telecoms stock is a shadow of its former self, with the share price languishing below 70p.
Following an 18-month Competition and Markets Authority (CMA) investigation, the company secured long-awaited regulatory approval for a merger with rival firm Three UK in December last year. The joint venture is expected to come on stream imminently.
But, how has this news impacted patient long-term investors in Vodafone shares, who have endured substantial losses?
Six-month performance
Back in October 2024, a £10,000 investment in Vodafone could have bought 13,329 shares. Unfortunately, news of the merger approval seems to have had little effect on the stock’s downward trajectory. That holding would only be worth £9,250 today.
At least an interim dividend payment of £251.39 would have softened the blow somewhat. But investors would still be nearly £500 in the red. To make matters worse, that distribution marked a gigantic 50% cut from the same period last year. An uncomfortable reminder that no dividends are guaranteed.
Share price recovery hopes
Frankly, a lot is riding on the merger with Three. Little else seems to be going right for Vodafone currently. Service revenue growth in Europe is stagnant, dragged down by a particularly poor performance in the crucial German market — the source of over a third of the group’s sales.
Legal changes have ended bulk television contracting in German apartment blocks. That’s a big factor behind Vodafone’s 6.4% service revenue slump in the jurisdiction. Among households caught by the new law, the company has lost over half of its customers.
The balance sheet is another big concern. Net debt of £26.4bn is an uncomfortably high liability for a company with a market cap that’s £9.2bn less than this figure. It’s little wonder the group has resorted to dividend cuts, as well as selling off its Spanish and Italian businesses.
On the bright side, growth in Türkiye and Africa is accelerating. These markets could prove increasingly important for a recovery in the Vodafone share price — if one is to materialise at all. Closer to home, it’s good to see revenues are also recovering in the UK, which is responsible for nearly a fifth of total sales.
And then we come back to the merger. The combined entity will boast 27m customers, making it Britain’s largest mobile network. In theory, that should provide the group with significant economies of scale and improved efficiency. Furthermore, reported plans for the launch of a TV service could aid customer retention figures. So, there’s some room for optimism.
I’m not convinced
However, I don’t think the merger is sufficient to assuage my fundamental concerns about the health of Vodafone’s business. It’s a debt-heavy enterprise that’s losing millions of customers in a core market. To make matters worse, chunky dividend cuts substantially reduce the stock’s passive income appeal.
Investors in Vodafone shares will undoubtedly hope the next six months are more positive. Their faith may be validated, but I won’t be joining their company for now. Overall, I think plenty of other FTSE 100 stocks have a more compelling investment case today.
