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He Vodafone (LSE:VOD) The share price opened 3% higher this morning (March 15) and, at the time of writing, is maintaining these gains. Investors seemed satisfied with the content of a regulatory announcement published an hour earlier.
Early riser
Every morning at 7am, I quickly scan the London Stock Exchange website to see notices about the shares I own. For a few brief moments, I was excited when I saw that the FTSE 100 The telecommunications giant had published one with the headline: “Sale of Vodafone Italia and return of capital“.
But then I realized what day it was. They say bad news is usually published on Fridays, in the hope that it will go unnoticed and most people will begin to relax over the weekend.
Well, the company's shareholders will notice this!
The devil in the detail
The sale of Vodafone's Italian division has been on the table for some time.
Together with its Spanish business, the return it generates is less than the cost of financing its operations. Therefore, it makes sense to exit these underperforming markets. In the words of the company management, this will help “Correct size“the portfolio.
Aware of the group's enormous debt, the directors have committed to “new leverage policy“. This involves keeping net debt to adjusted EBITDAaL (earnings before interest, taxes, depreciation and amortization, after leases) within a range of 2.25-2.75.
But I'm a little puzzled because, as of March 31, 2023, the company's leverage ratio (2.5) was already comfortably within this target.
Personally, I was disappointed by the news that the dividend will be cut, although it will remain at 9 euro cents for the year ending March 31, 2024 (FY24).
However, in FY25, it will be halved to 4.5 euro cents. Most analysts did not expect this. Before the announcement, the average of its 16 forecasts was for a dividend of 6.88 euro cents, with a range of 4.12 to 9.18 euro cents.
On the positive side, the company has stated its “ambition” to increase your payment over time.
Share buybacks
The directors have tried to soften the blow by announcing plans to buy some shares in the company. And this seems to have pleased the market. Personally, I prefer to have the cash in hand.
Once the deal to sell Vodafone Spain is completed, the company plans to embark on a share buyback program worth €2 billion. This will be followed by another, once the agreement is closed in Italy.
In FY25, shareholders will receive €1.1 billion in ordinary dividends and the company will spend another €2 billion on its own shares. The directors state: “This represents a 23% increase from the expected FY24 total shareholder return of €2.5 billion.“
Unfortunately, the €2 billion won't go that far now that the company's share price has risen.
Despite this increase, on paper I think Vodafone still looks cheap. As of September 30, 2023, its book value was €61.5 billion (£52.6 billion at current exchange rates), almost three times its current market capitalization.
This means it could be vulnerable to a takeover.
Perhaps the next time you see a stock market announcement about Vodafone (hopefully not published on a Friday) it will have a similar effect on the company's share price.