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Vodafone Group PLC ADR VOD

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Morningstar’s Analysis

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Vodafone Makes Solid Progress in Germany; Shares Remain Undervalued

Analyst Note

| Michael Hodel, CFA |

Vodafone showed improvement in several areas during its fiscal second quarter even as the pandemic continued to weigh on results. Consolidated service revenue declined 0.4% year over year but would have increased 1.5% absent a sharp drop in wireless roaming revenue. The Germany business, Vodafone’s most important, delivered strong cost savings stemming from the Unitymedia acquisition. The firm reiterated expectations for EUR 5 billion in free cash flow during fiscal 2021. Management also highlighted its desire to continue improving returns on capital, a focus we applaud. The planned IPO of its tower business should help in this regard, though management acknowledged that regulation needs to continue moving in a positive direction as well. We don’t expect to materially change our GBX 194 fair value estimate or narrow-moat rating and 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