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Vodafone is one of a select group of companies which managed to increase its dividend payment through the global downturn
Vodafone
Border Collie
Vodafone is one of a select group of companies which managed to increase its dividend payment through the global downturn. The company has also been instigating a share buy-back programme as it continues to produce organic revenue growth during 2011 Q1. A strategic repositioning to increase the focus of the group looks sound.
Vodafone has been divesting its non-core assets recently. The net outcome is that the company’s emerging market operations are principally focused on South Africa (Vodacom) and India. In terms of the five “BRICS” (including an S for South Africa) the group is therefore set to benefit from the growth of two of them.
The European operations have become more focused with the largest market in terms of revenue being Germany, the second largest Italy, followed by the UK and Spain.
Turning to the financials and the net effect of the divestments to date is that Vodafone is set to see a fall in earnings per share this year of around 10% (year to the end of March 2012). However, the sell-offs have allowed net debt to fall to £23bn as of Q1 which compares to £33bn as of March 2010.
The group has also continued its share buy-back scheme with £4bn targeted at the announcement of the first quarter results. This is not insignificant for a group with a market value of around £85bn and the share buybacks should be ongoing.
Profits growth looks set to resume from next year helping to support the dividend. Currently the group has an attractive dividend yield of 5.5% and the payment looks set to grow in the long-term.
Revenue growth is the key long-term driver for the business with Vodafone seeing positive organic service revenue growth of 1.5% in the first quarter. This compares to 2.5% last year but the important issue is that the business is continuing to see top-line growth.
Progress across emerging markets (Africa, Middle East and Asia Pacific block – AMAP) and mobile data revenue has been robust and continue to provide the main areas of growth for Vodafone.
Data revenue grew at an impressive rate of 24.5% during 2011 Q1 helping to offset the 2.8% decline in voice and messaging revenue. Strong mobile data growth is driven by the increased take-up of Smartphones, tablets and laptops.
Smartphones are growing strongly in developed markets while only in their infancy in emerging markets. Meanwhile, one forecaster has global tablet sales at 208m in 2014 which compares to expected sales of 54.8m in 2011. Many of these tablets will be 3G enabled to allow users to enjoy data when on the move.
India saw a 29.8% increase in the customer base and encouragingly saw voice pricing stabilise. In February 2011 India launched 3G services and Vodafone now has 3G coverage in 147 towns and cities. Vodacom meanwhile saw good growth in South Africa driven by a 35% jump in mobile data revenue.
In Europe the story remains one of two halves with Germany (the group’s largest market) and the UK seeing positive organic service revenue growth. Meanwhile Spain saw an almost 10% contraction and Italy saw a 1.5% contraction.
This article was produced by Senior Research Analyst, Andrew Latto
