ii view: Vodafone raises profit outlook

A dispute with the Indian government overshadows, but strategic priorities are being addressed. 

Half-year results to 30 September 2019

• Group revenue up 0.4% to €21.94 billion
• Service revenue up 0.3% to €18.54 billion (Q1: -0.2%, Q2: +0.7%)
• Adjusted Earnings before interest, tax, depreciation and amortization (EBITDA) +1.4% to €7.1 billion
• Statutory loss of €1.9 billion due to Indian business
• Net debt up 49.8% to €48.1 billion
• Interim dividend down 7% to 4.5-euro cents per share

Guidance:

• Full-year adjusted EBITDA of €14.8 to €15.0 billion (previously €13.8 to 14.2 billion)
• Free cash flow of around €5.4 billion (previously 'at least €5.4 billion')

Chief executive Nick Read said:

"I am pleased by the speed at which we are executing on the strategic priorities that we announced this time last year. This is reflected in our return to top-line growth in the second quarter, which we expect to build upon in the second half of the year in both Europe and Africa.

"The consistency of our commercial performance has improved in both regions, and we have made a fast start on integrating the acquired Liberty Global businesses, where we see significant long-term opportunity. Our digital transformation is already creating a better experience for our customers, improving our differentiation, supporting growth and at the same time reducing our structural costs.

"We have now secured network sharing agreements across most of our major European markets, and we recently announced a major long-term wholesale partnership with Virgin Media in the UK, in order to improve the utilisation of our network assets. And we expect our European TowerCo to be operational by May next year, enabling us to continue to unlock the significant value embedded in our tower infrastructure."

ii round-up:

Vodafone (LSE:VOD) has mobile operations in 24 countries, partners with mobile networks in 42 more, and provides fixed broadband operations across 18 markets.

It has around 640 million mobile customers, 21 million fixed broadband customers and 14 million TV customers including its joint ventures. The UK and Germany are two of its largest markets. 

For a round of these half-year results, please click here. 

ii view:

A $4 billion charge in back levies by the Indian government currently overhangs Vodafone. The dispute caused the company to report a first-half loss and cut its free cash flow guidance. It could even close its Indian business. Meanwhile, the Spanish business remains weak, and the need to reduce debt has already seen Vodafone cutting its dividend. 

More favourably, a return to revenue growth and cost-cutting underwrote a €1 billion upgrade to full-year profit expectations. The acquisition of Liberty's cable networks business has raised cross-selling opportunities, while a potential sale or IPO of its European tower infrastructure or TowerCo business offers potential to further reduce debt. 

For investors, a forward dividend yield of over 4% in the wake of the recent rebasing is still attractive in the current ultra-low interest rate era. A forward price/earnings ratio of in the early twenties sits at a discount the three-year average of nearer to 30. Vodafone does look to be making progress, and there is still much to play for. 

Positives

• Rolling out its 5G network in the UK  
• Increasing digital sales will see the need for less stores and resellers, saving costs
• Targeting a progressive future dividend policy

Negatives

• A dispute with the Indian government overhangs
• Dividend payment has been rebased
• Group debt levels have increased

The average rating of stock market analysts:

Buy