The Vodafone (LSE:VDO) share price was down 6% this morning after it failed to impress with subpar results for the first half of 2024.

Despite initiating a major transformation of its business this year, the immediate benefits are not yet apparent. From the looks of things, it may be some time before the company sees the fruits of its recent efforts.

Total revenue increased 1.6% to €18.3bn with service revenue up 4.8% on an organic basis. This was held back by a 6.2% decline in growth in Germany but offset by growth in Türkiye, Africa, and other parts of Europe.

Operating profit increased 28.3% to €2.4bn, largely driven by the disposal of an 18% stake in Indus Towers. It also secured €5.4bn in cash proceeds through the disposal of assets in Spain and parts of a stake in Vantage.

An interim dividend of 2.25c per share was announced, along with the completion of almost €500m in share buybacks.

A tough decade

The past 10 years have not been kind to the country’s largest telecommunications network. Since November 2014, the stock has lost 70% of its value, falling from 230p to 68p per share.

Not that long ago, Vodafone was one of the top dividend-payers on the FTSE 100, with an attractive 10% yield. Although it had seen no growth in five years, it maintained a decent full-year dividend of 9c per share. But a reduction announced earlier this year means it’ll fall to 4.5p per share from next year.

It’s a sad state of affairs for a stock that was once a top feature in many passive income portfolios. However, an aggressive turnaround strategy is in place — so what could the future bring?

Looking ahead

Vodafone’s price-to-earnings (P/E) ratio has been hovering around 20 for several months now. But with earnings forecast to grow 64% in the coming 12 months, it could drop to 11. That would make the current price attractive, and possibly stimulate further growth.

Key competitor BT Group is forecast to enjoy similar growth, potentially bringing its P/E ratio down from 16.7 to 9.4. Overall, the forecasts are indicative of a positive outlook for the UK telecoms sector.

But growth or not, Vodafone still has some serious balance sheet issues to address. Notably, nearly €50bn in debt that is probably weighing on its operational efficiency. With interest expenses accounting for over half of its operating income, it doesn’t have much to play with in terms of funding new developments.

This year was showing signs of a possible recovery, with the price climbing 12% to reach 78p in September. Today’s results erased those gains, taking it down 1.5% year to date. 

But the knee-jerk market reaction may be short-lived as there is already evidence of improvement. Steady growth in Africa, a mega-merger planned in the UK, and an eventual return on 5G investment.  As is often the case, I expect it will recover most of today’s losses in the coming weeks.

Who knows, it may even rediscover the growth it enjoyed in August and close the year up. If that happens, it would be the first time since 2017.