Vodafone results and 8% yield trigger buying frenzy

Vodafone is not out of the woods, but these results contained enough positives to propel the share price up as much as 10%, writes Richard Hunter, head of markets at interactive investor.

Vodafone has been sending out a weak signal of late, but there are some indications that the telecoms giant is coming to grips with its issues.

The operating loss is disappointing and largely caused by its ill-fated foray into Vodafone India, as well as write-downs in Spain, while the general level of price competition extends across all of its markets, with Italy being another notable example. 

Meanwhile, net debt is running high and has risen by over 6% to stand currently at some €32.1 billion, group revenues have drifted by 5.5% and, inevitably, the earnings per share metric has also taken a hit given these inputs. Foreign exchange headwinds are an additional challenge, as is the increased effective tax rate which the group is now facing.

Nonetheless, bulls of the stock may well see this as something of a turning point.

Source: TradingView (*)      Past performance is not a guide to future performance

More positively, the increased free cash flow figure of €5.4 billion is both welcome and above expectations, and should mean that previous concerns around the dividend should dissipate. 

Indeed, a current and projected dividend yield of over 9% is a clear invitation to income seeking investors, with the fact that the dividend has been held being seen as a prudent move whilst net debt is addressed. 

The Liberty Global acquisition has clear merits, while the fact that adjusted organics earnings grew by 2.9% is of comfort. Alongside this cash generative ability is a revised set of cost cutting targets which should offset some of the weaker revenues being seen in certain parts of the business.

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Vodafone is not out of the woods, but it has established a positive direction of travel. This should come as some relief to long-suffering investors who have had a torrid time, with the share price having dropped 34% over the last year, as compared to a 5% dip for the wider FTSE 100, with a decline of 19% in the last three months alone. 

The positive initial reaction to the numbers calms some of the turbulence and underpins a resolutely optimistic view on the company's prospects, where the general market view of the shares as a 'buy' remains intact.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.