It is game on for Vodafone (VOD), as its ability to react to a challenging environment whilst positioning itself for the future begins to reap rewards.
On most metrics, the company has exceeded expectations, with another reduction in net operating costs and a strong hike in adjusted earnings pushing Vodafone back into the black. Full-year pre-tax profits showed a 39% increase, whilst from an operational perspective broadband gains and strong data demand provided additional tailwinds.
Even at the flagging India business, where revenues were down 19% due largely to intense competition, the announcement of the merger with Idea Cellular is not only timely but likely to be mutually beneficial.
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Despite continued investment in the business, such as India and the Liberty Global Germany acquisition, Vodafone has again raised its dividend in view of its own confidence in prospects, and the current yield of 6.4% is a strong invitation to investors who are being paid handsomely to wait whilst the strategy unfolds.
Source: interactive investor Past performance is not a guide to future performance
As ever, there are pockets of caution within the numbers – net debt remains at a significant level, revenues actually dropped 2.2%, and the very nature of the business is prone to disruption and fierce competition.
The impact of European price wars and the reduction in data roaming charges have been drags on the share price, even though these concerns seem to have been somewhat overstated. The change of chief executive – Vittorio Colao hands over to chief financial officer Nick Read in October – seems also to have had an unsettling effect Tuesday.
Indeed, the shares have lost 2% over the last year, as compared to a 3.7% gain for the wider FTSE 100 (UKX), and they’ve had a difficult last six months where the shares have declined by over 9%.
The company may have been a laggard of late in terms of this share price performance, but given Vodafone’s cash generative abilities, the attraction of the dividend and its continuing growth prospects, the market consensus is markedly different, coming in at a ‘strong buy’.
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