Vodafone: The post Verizon
Wireless shape of Vodafone is becoming clearer. These first half numbers to 30th
September showed group revenue down 3.0% and EBITDA down 10%, both on an underlying
basis. For the record and amid many adjustments, the pre-tax profits were down
44.9% and adjusted continuing eps down 46.5% at 2.63p. The fog clears as we get
to the dividend line with the interim dividend of 3.6p, up 2% although this is
shy of expectations for a 5%-7% rise. The company re-iterated its policy to
“increase the full year dividend per share annually”.
These bare numbers hide a huge amount of activity and data
points galore. The two year long £19bn organic investment programme across its
geographies, dubbed Project Spring, continues apace with 4G roll out now
covering 10.5m customers group wide. The Project is at its half way point, so
more benefits for customers are to be expected. Group data traffic was up 77%
yoy and is still accelerating. They mention that they are in transmission from
being a mobile telephony company to a “unified communications provider”. This
is a big transition and they will meet the likes of BT coming in the opposite
direction from a fixed line heritage, as everyone tries for the quad play of
fixed, mobile, broadband and content. Across Europe the receding spectre of
austerity has helped Vodafone stabilise returns after many years of misery. Their
emerging markets m-Pesa money transfer service now has 18.5m customers and
continues to grow.
It is well worth remembering that Vodafone has a substantial
deferred tax asset and in this period they recognised an additional £5.5bn,
taking the total to £25.4bn. If ever it could be unlocked, say on a corporate
event, this becomes very significant in the context of a market capitalisation
of £58.6bn and underlying debt of £18.6bn (i.e. an Enterprise Value of £77.2bn).
The company’s slightly increased guidance is that the first half was in line
with their expectations and that “EBITDA for the financial year 2015 to be in
the range of £11.6bn to £11.9bn, and free cash flow to be positive, after all
capex”. They also comment that the current investment programme will, in time,
feed through to “revenue, profitability and cash flow”. Taking the low end of
the EBITDA range at £11.6bn the EV/EBITDA ratio is a modest 6.6x. A dividend of
11.3p would be a yield of 5.1% at 220p, with modest growth seen the year after.
None of this is that racy, but that yield is going to attract income growth
investors, especially with an improving trading picture offering the potential
for some profit upgrades in the future. (Neil Cumming, 12th November 2014)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about.
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