Vodafone share price: what to expect from annual results

Vodafone faces a host of challenges as it reports full-year earnings, with the current downtrend in the share price still firmly intact.

When does Vodafone report earnings?

Vodafone reports full-year results on 14 May 2019, covering its financial year to 31 March 2019.

Vodafone's results preview: what does the City expect?

Vodafone is expected to report a 19% fall in annual earnings, to 9.5 cents per share, while revenue is forecast to fall 3.7% on an annual basis, to €44.9 billion. It has beaten earnings forecasts in five of the last eight reports, but missed on revenue forecasts in five of the last eight.

Earnings estimates fell steadily throughout 2018, bottoming out at around eight cents in early 2019, down almost 50% from the 2018 peak. Since then they have recovered, but the cautious outlook persists.

The year 2018 was a tough for Vodafone, having seen a steady decline in service revenue growth, hit by repricing in Spain and in its Vodacom unit. However, in the third quarter, the business did see some signs of improvement in its struggling Italian and Spanish markets. It is definitely true that Vodafone has lacked a positive catalyst to get the shares moving higher, having fallen by a third in just a year.

Vodafone’s aggressive acquisition strategy, coupled with high levels of investment spending in areas such as wireless connectivity, has meant that the debt pile has grown heavily, and the drop in the share price has driven the dividend yield up, to an eye-watering 9%. This might look like an offer that is too good to miss, but as ever in markets such extremes should act as a red flag – a yield that high seems tempting, but is often a prelude to a cut in the dividend. A Vodafone dividend cut would send shockwaves through investors, who have become used to the regular and solid payouts.

The firm has pledged to freeze, rather than cut, dividends, and it does have options to free up cash, such as selling off part of its estate of phone towers, followed up by a leaseback agreement, but those investors that consider dividends to be a key part of their strategy will worry that the payout is not covered by earnings. The group is using up cash reserves to pay a dividend, effectively sawing off the branch on which it sits. Net debt has risen by over 6% over the past year, to a worrying €32 billion, and so far there is little sign that this will be cut back.

Earnings have risen steadily since 2016, but remain solidly below the 2015 peak. An improvement in performance in key geographies will help, but the outlook for major telecoms firms suggests that more expenditure will be needed as 5G is rolled out. Vodafone thus has to find cash from somewhere, and the subject of the dividend will undoubtedly come up for discussion again.

How to trade Vodafone’s full-year results

The average move on results day for Vodafone is 2.8%, but current options pricing from Bloomberg suggests a 3.7% move is in the offing. Of the 26 analysts covering the shares, seventeen have a ‘buy’ rating, with seven ‘holds’ and two ‘sells’. The current median target price is 189p, versus a current price of around 141p.

Volatility in Vodafone shares peaked in November and December at around 4.5p for the 14-day average true range. This was almost as high as in February, when the steep decline in the share price began. Since the beginning of the year, volatility has declined, with the 14-day ATR now at 2.66p, with the shares trading in a steady range for most of March and April.

Vodafone currently trades at 15 times earnings, well below the five-year average of 29, and close to the low of 13.7 seen at the end of February. This seems to underrate the tough outlook for the firm, although it is at the bottom of the five-year range (13.7 – 45.9).

Vodafone share price: technical analysis

The performance of Vodafone since 1 January provides a mirror for that of the FTSE 100. While the index is up 10.3%, Vodafone is down 10.3%. On a one-year timeline, the index is still down 3.6%, while Vodafone is 33% lower.

Despite a rebound from the lows of late February and early March, the downtrend from the January 2018 highs remains intact. A rally towards 150p in March stalled at 148p, and while so far the 139p area has provided support there seems little appetite to push higher and test 150p again. A rally in this direction would test trendline resistance from the January 2018 highs. Further declines below 139p head towards the March low at 130p. We wait for a break of the current trading range (blue rectangle) to indicate the next direction for the share price.

Vodafone struggling in the near term

While still a solid dividend payer, Vodafone has major challenges to overcome. The shares have been left far behind by the broader index, and a major positive catalyst has yet to emerge. The downtrend is firmly intact, providing an opportunity for short positions, while those looking for long positions will likely wait until a new higher high and higher low has been established.

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