Vodafone (LON: VOD) share price is not doing well even as the management works to solve its many challenges. The stock has dropped by over 55% from its highest level in 2018 and is loitering near its lowest point since January 2013.
Turnaround to take timeVodafone, one of the biggest telecom company, is facing numerous challenges. Its growth in core markets like Germany and the UK has stalled while the cost of doing business is rising. As a result, the management is working to solve these issues and position it for growth.
In the UK, Vodafone aims to boost growth by merging with Three, a company owned by Hong Kong’s SK Hutchison. That move will help it gain scale as it competes with the likes of BT Group and Virgin Media.
The other major strategy is that Vodafone is reducing its mountain of debt by selling businesses. It has disposed of its stake in Vantage Towers, Vodafone Hungary, and Vodafone Ghana. These disposals have helped it reduce its net debt to €36.2 billion from the previous €45.2 billion.
Vodafone sold its Spanish business to Zegona in a €5 billion deal. It is also in talks with Iliad about merging its Italian business with Iliad Italy. The goal is to create a bigger company that will be able to compete well with Telekom Italia. The combined company would be valued at over €14 billion.
Therefore, it is clear that Vodafone is taking the right steps to boost its revenue growth and reduce its massive debt load. For one, its Italian deal would hand it €6.5 billion in cash, €2 billion in shareholder cash, and a 50% stake in the company.
The challenge is that the nature of its business is facing challenges in key countries. As I wrote recently, Ofcom is considering putting limits on inflation adjustment to pricing in the UK. Such a measure would hurt the company’s business by limiting revenue growth.
It is also not clear whether the CMA will allow the Vodafone and Three merger. These challenges explain why the company is trading at a discount compared to its peers. It has a TTM PE multiple of 2.17 compared to the sector average of 17.
The most recent results showed that Vodafone’s revenue dropped by 4.3% to €21.9 billion in H1 FY24. Its operating profit crashed by 44.2% to €1.65 billion while the adjusted free cash flow was minus €1.4 billion.
Vodafone share price analysis
Turning to the weekly chart, we see that the VOD stock price has been in a strong downtrend for a long time. It has crashed from the January 2018 high of 156.26p to a low of 64.56p in December. The stock remains below several key levels such as the support at 86.17p, the lowest swing on November 1st, 2021. This price was also the neckline of the double-top pattern.
The shares are below the 50-week and 25-week moving averages, signaling that bears are still in control. Therefore, I suspect that the stock will remain under pressure as long as it is below the 50-week moving average.
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