Vodafone signals rebound, shares follow

<p>  Vodafone has edged up core forecasts after reporting a strong advance in quarterly revenue. This hint of a rebound in earnings seems to be […]</p>


Vodafone has edged up core forecasts after reporting a strong advance in quarterly revenue.

This hint of a rebound in earnings seems to be exactly what shareholders wanted to hear and they have this morning and sent the stock around 4.5% higher at the open of trading.


Sales still soft but firming

Vodafone’s second-quarter organic service revenue, (this excludes handset sales and currency movements) still fell 1.5%, and was below the 4%-to-5% achieved by the world’s second-largest mobile phone company in subscriber numbers during the last six quarters.

But consensus forecasts had suggested a fall of 2.8%.

And full-year core earnings guidance was increased to between £11.6bn and £11.bn from the £11.4bn figure the group said it was expecting previously.

Vodafone’s chief executive Vittorio Colao said the quarterly performance was the beginning of a stabilisation, after a number of quarters of ebbing revenues and disruption following the company’s $130bn sale of its stake in US cellular giant Verizon Wireless, in the autumn of last year.

“We have made encouraging progress during the quarter,” Colao said.

“There is growing evidence of stabilisation in a number of our European markets, supported by improvements in our commercial execution and very strong demand for data.”

After the disposal of its 45% US wireless stake, the carrier embarked on a two-year, £19 billion upgrade of its global mobile network, with the proceeds.

The “investment programme is well underway, and customers are beginning to see the benefits”, noted Colao.



Vodafone may be winning in Europe

This morning’s results suggest some of the intense competitive pressures seen recently in Vodafone’s biggest European markets may have eased.

Services revenues remained negative in four major markets of Germany, Italy, Britain and Spain, but all showed improvement quarter-on-quarter.


Dividend, acquisition clarity needed

Two major additional points the firm will need to provide more clarity on later today (a press conference is scheduled for later this morning).

  • The projected loss of earnings after selling-out from Verizon Wireless could, judging by calculations just over a month ago, lead to an ‘uncovered’ dividend’—profit attributable to shareholders equal to a ratio of 1 or less of the amount allocated for dividends. No doubt Vodafone could fund dividends without cuts, but clarity is required.
  • With Vodafone, speculation of acquisitions and disposals is pretty much constant. Right now larger potential targets may include Italian broadband operator Fastweb, which looks to be worth about $6.3bn, and German cable group Versatel, in which United Internet AG has a significant stake.




Stock could have headroom

In any case, the market has signalled its satisfaction with Vodafone’s quarterly progress, though the price may arguably have run ahead of early impetus already.



Still, for the immediate-to-medium term, the market appears on a mission to return the shares to values seen earlier in the year as quickly as possible, and that offers the chance of additional upside today.



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