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Vodafone Group PLC ADR VOD

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Morningstar’s Analysis

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Economic Moat




Vodafone Sees Solid Customer Improvement Despite the Pandemic; Shares Remain Undervalued

Analyst Note

| Michael Hodel, CFA |

Vodafone’s fiscal first-quarter revenue performance was very respectable given the hit to revenue caused by the pandemic. Consolidated service revenue declined 1.3% year over year, snapping a three-quarter stretch in which revenue had shown accelerating growth. Lower wireless roaming revenue (down 70% versus the prior year) was the primary culprit. Looking at results in each country, however, Vodafone posted solid customer metrics across its major European markets, adding broadband customers in each. Spain and Italy, both troubled markets for Vodafone in recent quarters, showed improvement despite being hard-hit by the pandemic. Management also reiterated expectations for EUR 5 billion in free cash flow and EBITDA to be flat or down slightly for fiscal 2021. We don’t expect to materially change our GBX 194 fair value estimate or narrow moat rating in response to the trading update (Vodafone only discloses profitability and balance sheet information semiannually). We believe the shares are attractive.

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Company Profile

Business Description

With about 270 million wireless customers, Vodafone is one of the largest wireless carriers in the world. More recently, the firm has acquired cable operations and gained access to additional fixed-line networks, either building its own or gaining wholesale access. Vodafone is increasingly pushing converged services of wireless and fixed-line telephone services. Europe accounts for about three fourths of reported service revenue, with major operations in Germany (about 30% of total service revenue), the U.K. (13%), Italy (12%), and Spain (10%). Outside of Europe, 65%-owned Vodacom, which serves sub-Saharan Africa, is Vodafone's largest controlled subsidiary (12% of total service revenue). The firm also owns stakes in operations in India, Australia, and the Netherlands.

Vodafone House, The Connection
Newbury, Berkshire, RG14 2FN, United Kingdom
T +44 163533251
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Sep 30, 2008
Fiscal Year End Mar 31, 2021
Stock Type
Employees 104,135