Is the price of Vodafone shares in turn?

I have been arguing that the Vodafone (LSE: VOD) The price of shares underestimates the real value of the telecommunications group. However, no one seems to have been listening!

Well, maybe things begin to change. That is because from February 4, when the price of the action closed to 65.1p, increases 16.1% to 75.6p (at lunchtime on March 21).

Although I am a shareholder, I try to have a dispassionate vision. It makes no sense to try to fool me if I know, deep down, I made an error when I bought the action. As Warren Buffett once said: “If you are in a chronic escape boat, it is likely that the energy dedicated to changing ships is more productive than the energy dedicated to patch leaks.“

But whatever the metric I use, I always return to the same conclusion. Namely that Vodafone market capitalization (currently £ 19.2bn) does not precisely reflect its underlying value.

Crunchating the numbers

Take profits as an example.

The price ratio to average historical profits (12 months) of 206 telecommunications companies listed is 12.6. For 12 months as of September 30, 2024, Vodafone's basic profits for continuous operations were 8.87 euro cents (7.43Pa the current exchange rates). If the group was valued in line with the average sector, their actions would currently change hands for 93.6p. That is a 23.8% premium at the current price.

It is a similar story when the group's balance is considered. Using its last accounts published as of September 30, 2024, the price-book relationship of Vodafone (PTB) is only 0.38. By way of comparison, its closest rival in the Ftse 100, BTIt has a PTB ratio of 1.3.

Finally, I believe that the most recent transaction of the company supports my argument.

In January, Vodafone sold its Italian division by 7.6 times the gains adjusted before interest, taxes, depreciation and amortization, after leases (Ebitdaal). Analysts are predicting Ebitdaal € 11.02 billion (£ 9.24 billion) for the year ending on March 31, 2025. Value the group with the same base would imply an assessment of the stock market of more than £ 70 billion. Reducing this according to the group's debt would still suggest that its current market capital is well below its intrinsic value.

Problems to overcome

However, despite my belief that it is undervalued, the group continues to face some challenges.

As a result of a change of law with respect to the grouping of contracts, it is losing national clients in Germany, its largest market. And its debt remains on the high side: the telecommunications infrastructure is not cheap. Competition in the sector is also intense.

The skeptics could also point out that the company's shares repurchase program is behind the increase in the price of the action, instead of a change in the feeling of investors. The company has bought just over 406 m of its own shares since the beginning of February, reducing the number in circulation by 1.6%. I am sure that this will have had an impact on the price, but I do not think it explains all the recent increase.

Calm yourself!

However, despite the recent rally of the price of shares, I don't get too excited. A look at the group's five -year table shows that we have been here before. Many times, in fact.

At least he has been in a trend in the right direction during the last six weeks or so. Therefore, I will cling to my Vodafone actions, hoping that more investors will soon value shares such as me.