ii view: Vodafone strategy can deliver much more

Revenues are down, but investors are being paid to wait for recovery with a dividend yield of over 6%. 

First-half results to 30 September

• Revenue down 2.3% to €21.43 billion
• Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) down 1.9% to €7 billion
• Interim dividend unchanged at 4.5-euro cents per share

Chief executive Nick Read said:

"[These] results underline increased confidence in our full year outlook. We are reporting a resilient first half performance and we continue to see good commercial momentum across the Group. The results demonstrate the success of our strategic priorities to date, namely increasing customer loyalty, growing our fixed broadband base, driving digitisation to simplify the company and capture significant cost savings, and deliver 5G efficiently through network sharing.

"Covid-19 and the reduction in roaming revenues, through the significant reduction in international travel, is currently obscuring our underlying commercial progress, with Q2 service revenue growing by 1.5% excluding roaming. We are now two years into our longer-term strategy to transform Vodafone into a business that enables a digital society, generating both sustainable growth and attractive returns. We are executing at pace, but there remains more to be done to achieve our goals.

"Now, more than ever, the connectivity services we provide are critical for society and the demand is growing for our services. I am proud of how our dedicated employees have worked tirelessly around the clock to keep everyone connected."

ii round-up:

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

During its last full financial year, Germany generated its biggest slice of revenues, followed by the UK.   

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

It has just announced plans to reduce its total global carbon emissions to 'net zero' by 2040. 

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

ii view:

Having arguably lost its way, Vodafone announced several strategic priorities in 2018. These now include strengthening engagement with customers, improving both its use of digital channels to acquire customers and utilisation of its assets, and optimising its portfolio of businesses. The change of direction also involved the rebasing of its dividend payment from 15 eurocents per share in 2018 to 9 eurocents per share in 2019. 

Moves to date under the strategy have seen it sell its New Zealand operation and grow cross-selling opportunities in Germany via the acquisition of Liberty Global's (NASDAQ:LBTYK) broadband network. It has overseen an increase of nearly 2% in European contract customers in this latest period to 65 million and it is close to achieving its original three-year target of at least €1.2 billion in cost savings. 

Most recently, Covid-19 has generated mixed fortunes. A positive spike in data traffic as consumers increase their use of the internet is somewhat offset by lower mobile roaming revenues given significantly reduced international travel. 

For investors, falling revenue and still elevated debt suggest its new strategic pushes have more to deliver. But the drag on roaming revenues is likely to reverse in the medium term, while the planned stock market listing of its European tower infrastructure, or Towers, business early in 2021 should help lower debt. Further cost savings are being targeted and current levels of free cashflow appear to make share buybacks appear viable at some point in the future, at least once debt has been brought more into line with management targets. In all, sat on a historic and forecast dividend yield of over 6%, Vodafone shares continue to look attractive for long-term investors. 

Positives

• Attractive dividend payment (not guaranteed)
• Increasing digital sales will see the need for less stores and resellers, saving costs

Negatives

• Overall group revenue down 2.3% 
• Still elevated debt level

The average rating of stock market analysts:

Strong buy