The British group, Vodafone (VOD, Financial), reported the half yearly figures on Tuesday, November 11, leading to analysts cheering at the news of its improvement in the quarterly revenue helped by growing demand for mobile services in the European market. While the FTSE saw a boost in the stock price soon after the half yearly report was published, investors were happy about the fact that they had trusted the stock. Let’s take a deep dive into Vodafone’s playbook to decipher what was shared during the earnings call, and what the management had to say regarding the upcoming future of the company.
The numbers say it all
Vodafone reported second quarter organic service revenue which strips out items like handset sales and currency movements, down 1.5%, compared to nearly 4% to 5% fall recorded in the past six quarters. It has even beaten the consensus estimate of a fall around 2.8% for the quarter.
The world’s second-largest mobile operator said that it expects the full-year core earnings to be between 11.6 billion pounds and 11.9 billion pounds, compared to the previous lower guidance of between 11.4 billion pounds and 11.0 billion pounds.
CEO Vittorio Colao shared, “We have made encouraging progress during the quarter. There is growing evidence of stabilization in a number of our European markets, supported by improvements in our commercial execution and very strong demand for data.”
Vodafone took the strategic decision of selling its operations in the U.S. and started concentrating in Europe and emerging markets. The sales proceeds are being invested on new, faster 4G networks to satisfy customers’ growing appetite for data.
Vodafone’s half yearly core earnings for the half year showed decline of 10% standing at 5.9 billion pounds. The company believes that this reduction reflects the impact of revenue declines in Spain, Germany and Italy which offset the stable margins in AMAP.
Nevertheless, the board announced an interim dividend per share of 3.60 pence, up 2% year over year, in line with the intention of increasing the full-year dividend per share annually.
Strategies down the line
The firm has laid out plans to roll out 4G over the next 18 months to reach 90% coverage in Europe, aiming to encourage customers to sign up contracts with bigger allowances. The management have reiterated that the two-year investment programme worth 19 billion pounds was “well under way.”
This move will place Vodafone in direct competition with BT (BT, Financial), which is planning its own attack on the mobile market.
Though it’s known as a chief player in the mobile market, Vodafone has embarked on a program to either build or buy superfast broadband networks across Europe for competing with rivals offering mobile contracts along with television, broadband or fixed-line deals. Colao told reporters that the group would launch a consumer broadband offering with a TV package in Britain supported by Cable &Wireless (CWC, Financial) fiber network which it currently offers only to enterprise customers. In areas where the latter’s infrastructure is absent, it might join hands with BT.
Citi analysts have commented on the progress made by Vodafone: “This solid set of numbers represents progress, and with only 6 percent of European customers on 4G and Project Spring barely begun, the moment that Vodafone can report positive service revenue growth has probably moved forward.”
Investors have to take a call
The stock has reacted positively irrespective of the service revenue having remained negative even in this quarter. With the plans of launching a broadband and TV service in its home turf for competing with rivals providing a better range of products and services, it was able to send its shares up 4% in morning trade, making it one of the top gainers in the FTSE 100 Index. More is surely there to reveal in the next few months and investors are keen to find out to what extent the strategies see the light of the day by the end of the 2015 fiscal year. So, let’s stay tuned and hold our investments safely in the stock till we get further insight of the company’s progressive moves.
