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Investing in FTSE 100 worth shares gives a possibility for share pickers to supercharge their long-term returns. The idea is that undervalued firms could rebound strongly as market perceptions enhance, delivering spectacular capital features within the course of.
Vodafone Group (LSE:VOD) is one cheap-as-chips Footsie inventory on my radar at present. Its shares appear to supply distinctive worth throughout a spread of metrics, together with predicted earnings and dividends, in addition to the worth of its property.
Whereas they’re not with out threat, right here’s why I believe Vodafone shares are value a detailed look from worth traders.
Earnings
First we’ll take a look at how the telecoms titan is valued utilizing the price-to-earnings (P/E) ratio.
For this monetary yr (to March 2025), Vodafone has a P/E of 9.9 instances. To place that in context, the FTSE 100 common sits on a better 14.3 instances.
However how does this evaluate with readings throughout the broader sector? Because the desk reveals, Vodafone additionally scores pretty properly on this metric versus different main business gamers.
| Firm | Ahead P/E ratio |
|---|---|
| Telefónica | 15.1 instances |
| Orange | 9.7 instances |
| Deutsche Telekom | 16.4 instances |
| A&T | 10.5 instances |
| Verizon Communications | 9.6 instances |
| T-Cell | 25.9 instances |
Dividends
Telecoms firms are famed for offering massive dividends because of their steady, recurring revenues and excessive money flows.
Earlier in 2024, Vodafone introduced plans to rebase its dividends with the intention to reduce debt. But regardless of this, the ahead dividend yield, at 6.3%, nonetheless soars above the Footsie common of three.6%.
Moreover, the yield on Vodafone shares additionally beats the corresponding studying of most of its sector rivals.
| Firm | Ahead dividend yield |
|---|---|
| Telefónica | 6.9% |
| Orange | 7.4% |
| Deutsche Telekom | 2.9% |
| A&T | 4.9% |
| Verizon Communications | 6% |
| T-Cell | 1.2% |
Belongings
The ultimate factor I’m contemplating is how low cost Vodafone shares are in relation to its e-book worth. That is the worth of the agency’s complete property minus complete liabilities.
Right now the price-to-book (P/B) a number of is round 0.4. This comfortably is available in beneath the worth watermark of 1.
Time to contemplate shopping for?
So all in all, Vodafone scores fairly properly. However certainly there have to be a catch? In spite of everything, the agency’s share price is down 54% within the final 5 years, indicating potential inside and/or exterior issues.
Arguably the largest concern is the dimensions of the corporate’s debt pile. Regardless of latest divestments, this remained at an eye-watering €31.8bn as of September.
This might considerably influence Vodafone’s progress plans and weigh on future dividends. Given how capital intensive its operations are, such excessive money owed are particularly worrying.
But on steadiness, I consider the potential advantages of proudly owning Vodafone shares could outweigh the dangers. It nonetheless faces issues in Germany following adjustments to service bundling legal guidelines. However gross sales are rising strongly in its different European territories, to not point out in Africa (the place natural first-half revenues soared 9.7%).
Vodafone’s refocussed efforts on its Enterprise division are additionally paying off, with natural service income progress dashing up to 4% within the six months to September.
With its scale and market-leading model, I believe Vodafone could possibly be an effective way for traders to capitalise on the rising digital financial system over the long run. At present costs, I believe it calls for severe consideration.