It’s no secret that Vodafone (LSE: VOD) shares have been falling for some time.
The telecoms business has not been performing well for its shareholders over recent years. However, there are some signs that the fortunes of the enterprise may be about to improve.
Change at the top
And one of the biggest positives is the appointment of a new chief executive announced on 27 April.
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Margherita Della Valle had been acting as interim chief executive since December 2022 as well as being the chief financial officer. And in April, the board of directors said they’d been impressed with her “pace and decisiveness to begin the necessary transformation of Vodafone”.
The new chief wasted no time in fleshing out her turnaround plan for the business. And some of the details were presented in the full-year report delivered on 16 May – more about that below.
However, if I’d invested £1,000 in Vodafone shares two years ago, my estimation tells me I’d have around £750 left now.
The share price was just below 79p on 30 May, and two years earlier it was around 128p. But that loss will have been mitigated by around 16.5p per share of dividends over the period.
Nevertheless, the total return over two years is a thumping loss of about 25% of invested money – ouch!
Big debts
So what’s been going wrong with the telecoms giant? My suspicion is that one factor driving the share price lower has been the big mountain of debt on the balance sheet.
Vodafone is a big player in Europe and Africa and has invested a lot of capital to maintain, upgrade, and extend its infrastructure. And that’s led to a growing pile of borrowings over the years.
Five years ago, the net debt figure was close to £26bn. But now it’s near £42bn. And that kind of burden makes it hard for the company to reward shareholders.
For example, the compound annual growth rate of the dividend over the past few years is running at a negative 21.5%. And where dividends go, share prices tend to follow. In this case, down.
Going for growth
In May’s report, Della Valle said Vodafone’s performance has “not been good enough” and to deliver consistently, the business must change.
She set out her priorities as being “customers, simplicity and growth”. And expanded by saying the company will simplify its organisation and cut out complexity to regain competitiveness.
On top of that, Vodafone plans to reallocate resources to deliver better quality of service. And Della Valle aims to drive further growth from the “unique position of the Vodafone Business”.
If efficiency gains like those can help the enterprise pay off more of its debts, I think we may see a turnaround begin to happen in the business and its share price. However, positive outcomes are never certain.
In the meantime, Vodafone stock still appears to be locked in to its downtrend. So, I remain cautious for the time being and I’m watching from the sidelines.
