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Vodafone shares jump as it lifts full year guidance after first half profits grow

Vodafone reported an increase in organic core earnings and revenues in the first half
Vodafone is expanding its fibre infrastructure in Germany, Portugal and the UK

Vodafone PLC (LON:VOD) rallied as it raised its full year earnings guidance after reporting an increase in first half profit and organic revenue.

The telecoms giant now expects organic adjusted underlying earnings (EBITDA) to rise 10% in the year, implying a range of €14.75 - €14.95bn, compared to a previous forecast of 4-8% growth. 

READ: Vodafone sells mobile phone towers in India to American Tower

The new estimates were ahead of the consensus forecast for 7% growth, sending shares up 5.12% to 226.95p in afternoon trading. 

The company said the improved outlook reflected stronger-than-expected underlying revenue growth in Europe and a later-than-expected commercial launch of a new entrant in Italy.

First half earnings rise

In the six months to 30 September, Vodafone reported a 13% increase in organic adjusted EBITDA to €7.4bn as the adjusted EBTIDA margin improved by 2.5 percentage points to 32%.

Excluding the impact of net roaming declines in Europe and the benefits in the UK from the introduction of handset financing and regulatory settlements, organic adjusted EBITDA increased 9.3%.

Organic service revenue rose 1.7% in the first half, driven by mobile data and broadband.

The second quarter saw a slowdown in organic service revenue growth to 1.3% from 2.2% in the first quarter, reflecting tough comparatives and a lower contribution from carrier services in the Africa, Middle East and Asia Pacific region.

Total revenue hit by deconsolidation of Dutch arm

Total revenue for the first half fell 4.1% to €23.1bn, with the group blaming the deconsolidation of its Vodafone Netherlands and foreign exchange headwinds.

The telecoms giant said its joint venture between Vodafone Netherlands and Ziggo, in which it owns a 50% stake, was hit by intense price competition in its mobile operations.

READ: Vodafone takes aim at BT through lightning fast telecoms network deal with CityFibre

The India division was also hurt by price competition, resulting in continued losses and lower revenues, but this was excluded from the group's first half figures.

Vodafone announced in March that it was merging its loss-making Indian mobile phone business with Idea Cellular after failing to list the unit.

On Monday, the company said it has agreed to sell ATC Telecom Infrastructure, a joint venture between Vodafone India and Idea that includes a network of 20,000 mobile phone towers across the country, to American Tower Corp. for 78.5bn rupees.

“In India competition remains intense,” said Vodafone chief executive Vittorio Colao.

“There are however signs of positive developments in the Indian market, with consolidation of smaller operators and recent price increases from the new entrant. We are making good progress in securing regulatory approvals for our merger with Idea Cellular and in monetising our tower assets.”

Expansion continues

Colao added that in the second half of the year the company will continue to implement strategic initiatives, including fibre infrastructure expansion in Germany, Portugal and the UK along with its entry into the consumer internet of things (IoT) market.

Vodafone in October announced that it launched "V by Vodafone" network, allowing consumers to connect home and leisure electronics products to its dedicated global IoT network.

Last week, the company unveiled a partnership with CityFibre to install one million new ultrafast connections in 12 cities by 2021 with a possible extension to cover five million homes by 2025. The project could prove a challenge for Openreach, which owns most of the UK's fibre network, and cable operator Virgin Media.

Vodafone hikes dividend, UBS repeats 'buy' rating

Vodafone raised its interim dividend by 2.1% to 4.84 euro cents as the group achieved free cash flow of €1.3bn, compared to a decline of €0.1bn the same period a year ago.

Net debt rose to €32.1bn at the end of September from €31.2bn at the end of March, as free cash flow and net proceeds from the sale of shares in South African mobile company Vodacom were offset by the payment of last year's final dividend of €2.6bn.

UBS reiterated a 'buy' rating and target price of 270p on the stock, saying it believes Vodafone is "too cheap", offering an 8% calendarised free cash flow yield for 2018 and a 6% dividend yield.

"We think consensus organic service revenue trends for Q3 will be similar to Q2 but should improve in Q4 as regulatory drag drops away.

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