Proactive investorsLogo Proactive Investors UK Website

Search field
  • Thermal Coal interests in South Africa Strategic Natural Resources
  • Acquisition & Exploration of Potash Properties WESTERN POTASH CORP
  • The only listed diamond producer in Botswana Diamonex
  • Diverse investments in a range of minerals and companies REGENCY MINES

RSS - Subscribe to the NewsEditorial news ▼

Proactive Investors United Kingdom

RSS - Subscribe to the NewsBreaking news ▼

Proactive Investors United Kingdom

RSS - Subscribe to the NewsEditorial news ▼

Proactive Investors North Americarss_icon

RSS - Subscribe to the NewsEditorial news ▼

Proactive Investors Australiarss_icon

Fat Prophets

Fat Prophets deliver a quality service to Members by discovering and identifying quality stock recommendations on the London Stock Exchange.

A number of free services are available for regular users of the Fat Prophets site. These have been designed to offer an interesting and topical analysis of the latest financial markets events.

Thursday, December 18, 2008
Vodafone - high quality defensive exposure

For Vodafone revenues may have weakened but cost cutting is set to more than make up for it on the other side. The dividend yield is strong, and set to get stronger as management batten down the hatches on future acquisitions having established key positions in high growth markets.


Vodafone’s interim results were something of a mixed bag.  Weaker economic growth has led management rein in full year revenue forecasts to March 2009 of £38.8 to £39.7 billion. Previously £39.8 billion was seen as an achievable, ‘bottom of the range’ figure.

Encouragingly though management’s ability to identify further operational fat will insulate bottom line earnings. New CEO 4Vittorio Colao re-iterated a full year profits forecast of £11 to £11.5 billion in the twelve months to 31 March 2009. The cash flow forecast was meanwhile upped £100 million to between £5.2 and £5.7 billion.

Mr Colao will be applying the scalpel to the group’s operating cost base, reducing it by £1 billion a year from the current £22 billion. And in much the same vein as BT Group job cuts will likely be part of the equation.

Vodafone’s interim results in November were on the face if it quite solid, however digging down on the detail underlines why management are right to move now.

Revenue in the first half to 30 September rose 17.1 percent to £19.9 billion. Seemingly impressive, it in fact was down to favourable currency moves. Underlying profits (earnings before interest tax and depreciation) came in 10.3 percent higher at £7.2 billion. The bottom line figure however was tarnished by a £1.7 billion write-down on the company’s Turkish network which is doing things tough at the moment.

Emerging economies are central to success for Vodafone and despite a slowdown, the company Vodafone is not about to abandon aspirations here. Organic growth here was 8.8 percent with South Africa and Egypt leading the way. The emerging markets as a whole contribute around 30 percent of Vodafone’s revenue, and are a critical component of the overall business and integral to future growth.



And certainly the chance to ‘top up’ exposure in regions where it already operates will likely be seized. The company has already agreed to take full control of Vodcom, South Africa’s biggest mobile operator for instance.

With the big deals done for the time being the focus is now back on existing assets and the changing economic landscape in the West.

Indeed we retain our view on Vodafone as a high quality defensive exposure generally. An as such regard a 2009 price to earnings ratio of around 10 times and dividend yield of 6 percent (with a progressive policy in place) as highly undemanding.

Other articles in Fat Prophets column

You need the Flash Player version 8.0.0.0 or higher and a JavaScript enabled browser to view this content