ii view: can Vodafone start to grow again?

Third-quarter results to 31 December

• Total revenue down 2.3% to €11.37 billion
• Organic service revenue up 4.7% to €9.38 billion 

Chief executive Margherita Della Valle said:   

“We maintained good service revenue momentum in the third quarter across both Europe and Africa, supported by a further acceleration of Vodafone Business, with our Cloud and Internet of Things services growing over 20%. 

“We’ve made good strategic progress in the first nine months of the year, with improving customer satisfaction and three consecutive quarters of service revenue growth in Europe. Our announced transactions in the UK and Spain are progressing well, and we are in active discussions in Italy. We’ve also begun strategic partnerships with Microsoft and Accenture to fast-track our transformation.”

ii round-up:

Vodafone Group (LSE:VOD) operates both mobile phone and fixed broadband networks.

Operating in Europe and Africa, key countries of operation include Germany, the UK, Italy, and South Africa under its Vodacom business. 

For a round-up of these latest results announced on 5 February, please click here. 

ii view:

Conducting the first mobile phone call ever in the UK in 1985, Vodafone today provides mobile and fixed line services to over 300 million customers. Germany generates its biggest slice of service revenues at 29%, with the UK and Italy coming in at 15% and 10% respectively. Other European countries come in at round 12%, with Vodacom a further 17%, and the Spanish business that's being sold and other Markets including Turkey accounting for much of the balance.  

For investors, management expects current full-year profit to come in around flat year-over-year at €13.3 billion, so there's room for improvement there. Group costs such as energy remain elevated, and group net debt of €36.24 billion (£31 billion) announced at the September's first-half results compares to a stock market value of £18.1 billion. Meanwhile, adjusted earnings of 11.45 eurocents per share for its last full financial year only just covered the annual dividend payment of 9 eurocents.

On the upside, a transformation programme is being pushed including a simplification of its businesses, with the future of its revenue challenged Italian business under management review. A strong focus on costs persists, while UAE telecommunications company e& continues to hold a significant shareholding in Vodafone, potentially applying further pressure on management for change.

Vodafone requires a bit of a leap of faith for investors lured by a low valuation, forecast dividend yield of more than 10% and consensus analyst estimate of fair value above 90p per share. There may be short-term opportunities here given stock market volatility, but long-term investors will demand that management demonstrates it is serious about revitalising the business and growing profits.

Positives

• Business and geographical diversity
• Ongoing management transformation programme

Negatives

• Fierce competition
• Concerns for a potential reduction in the dividend payment

The average rating of stock market analysts:

Hold