ii view: Vodafone growth nudges shares to 8-month high

Covid is hurting but is a return to growth for its biggest market Germany significant?

Third-quarter results to 31 December

Chief executive Nick Read said:

"I am pleased the Group returned to service revenue growth in Q3 as a result of the continued commercial momentum across our business, including our largest market Germany. Our good trading performance underscores our confidence in the outlook for the full year. We have made further progress on our strategic priorities, including the IPO of Vantage Towers in early 2021, which remains firmly on track and will now include our 50% shareholding in the UK towers joint venture with Telefonica.

“Our networks have successfully delivered another quarter of record data traffic as many countries continue to endure Covid-19 lockdowns and customers depend on our services. We have achieved this while further reducing our carbon footprint and we are making fast progress towards our important target of having our European networks wholly powered by renewable electricity by July this year.”

ii round-up:

European and African telecoms company Vodafone (LSE:VOD) operates mobile and fixed networks in 21 countries and partners with mobile networks in 48 more. 

It has over 300 million mobile customers and more than 27 million fixed broadband customers. Its networks also service over 22 million TV customers. 

For a round-up of these latest quarterly results, please click here. 

ii view:

Vodafone has been pursuing renewed strategic priorities since 2018. These include strengthening its engagement with its customers and optimising its portfolio of businesses. The change of direction also involved a previous reduction or rebasing of its dividend payment. 

Moves to date under the strategy have included the sale of its New Zealand operations and growing its cross-selling opportunities in Germany via the acquisition of Liberty Global’s broadband network. Germany now accounts for its biggest slug of revenues at around 30%. Followed by the UK at almost 15%. This latest quarter also highlighted successful efforts to deepen customer engagement, with year-to-date European mobile contract churn down 1.1% year-over-year. As for the pandemic, increased data demand continues to battle lower mobile roaming revenues due to reduced international travel. 

For investors, falls in service revenues across markets such as the UK and Italy in this latest quarter suggest room for ongoing improvement. Net debt of around €44 billion as of the half year results and at the upper end of management’s target range also stays on the radar. But a move to service revenue growth in this latest quarter, largely thanks to Germany, is clearly favourable. As should be the expected stock market listing of its European tower infrastructure or Towers business soon on lowering debt. For now, and with the shares offering a historic and estimated dividend yield of over 5.5%, Vodafone still looks attractive for long-term patient investors.

Positives

• Attractive dividend payment (not guaranteed)
• A return to service revenue growth

Negatives

• Italian service revenues fell by 7.8%
• Still elevated debt level

The average rating of stock market analysts:

Strong buy