ii view: Vodafone commits to further dividend increases

First-half results to 30 September 

• Revenue up 7.3% to €19.6 billion
• Adjusted profit up 5.9% to €5.7 billion
• Net debt of €25.9 billion up from €22.4 billion in late March
• Interim dividend unchanged from a year ago at 2.25 eurocents per share

Guidance:

• Now expects full-year adjusted profit at the upper end of a previous €11.3-11.6 billion forecast range
• Now committing to a progressive dividend policy and expects to grow the annual dividend per share by 2.5%

Chief executive Margherita Della Valle said:   

"Following the progress of our transformation, Vodafone has built broad-based momentum. In the second quarter we saw service revenue accelerating, with good performances in the UK, Türkiye and Africa, and a return to top-line growth in Germany. 

Whilst we have more to do, we delivered good strategic progress in the half year, driving further operational improvements across the business, expanding our customer satisfaction initiatives, and making a fast start in integrating the Vodafone and Three networks in the UK.

“We are introducing a new progressive dividend policy, with an expected increase of 2.5% for this financial year."

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ii round-up:

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

The company serves around 300 million mobile customers, more than 27 million fixed broadband customers and around 22 million TV customers. 

For a round-up of these latest results announced on 11 November, please click here. 

ii view:

Vodafone describes itself as the largest mobile and fixed network operator in Europe. Group services also include its M-PESA payment platform in Africa, enabling over 90 million people to benefit from access to its mobile network. Germany generated most revenues during this latest period at 31%. That was followed by the UK at 23%, Africa 20%, other parts of Europe 14%, and Turkey much of the 12% balance.   

For investors, estimated restructuring and spectrum costs of over €1 billion in Vodafone’s 2027 financial year are potential headwinds. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. Previous disposals of the group’s Italian and Spanish businesses now leave it less geographically diverse, while group net debt of €25.9 billion (£22.5 billion) compares to a stock market valuation of £22.6 billion.

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To the upside, cost savings and efficiencies are now being pushed for the UK business following the division’s previous acquisition and merger with rival ‘Three’. The competitive environment for its biggest German business has largely stabilised with service revenue growth achieved in Q2 from a fall in Q1. Strong customer demand for data and financial services in Africa continue to drive revenues, while the holding of a sizeable stake by UAE telecommunications company e& should continue to apply pressure on management to improve performance. 

In all, and with share buybacks ongoing and management’s new commitment to a progressive dividend policy underpinning a forecast yield of over 4%, income investors are likely to stay interested in this telecom play. 

Positives

• Exposure to Africa
• Shareholder returns supported by sizeable cashflows

Negatives

• Intense competition
• Reduced geographical diversification

The average rating of stock market analysts:

Hold