Eyes Down For Vodafone's Results

Published in Company Comment on 6 November 2012

A preview of Vodafone's (LSE: VOD) upcoming half-year results.

Vodafone (LSE: VOD) is due to announce its interim results on Tuesday this coming week (13 November).

At the time of writing, the mobile phone giant's shares are trading at under 170p and close to their 52-week low. This popular pick with income investors currently offers a prospective yield of around 6%, rising to over 7% if analysts' forecasts for a special dividend are on the button.

How will Vodafone's businesses have performed in the first half compared with last year's first half? And is the group on track to meet forecasts for this year's key full-year numbers? Here's your cut-out-and-fill-in table!

 H1 2011/12FY 2011/12H1 2012/13Forecast FY 2012/13Forecast FY growth
Revenue (£bn)23.5246.42?44.62-3.9%
Adjusted operating profit (£bn)6.0411.53?Range: 11.1-11.9 
Pre-tax profit (£bn)8.019.55?10.16+6.4%
Adjusted earnings per share (eps)7.75p14.91p?15.83p+6.2%
Dividend per share3.05p + 4p specialFinal: 6.47p

Total: 13.52p

?10.19p + 2.26p special

Total: 12.45p

-7.9%

(+7.0% excluding specials)

Free cash flow (£bn)2.626.11?Range: 5.3-5.8 

Source: Digital Look and company reports

Earnings and dividends

Analysts are forecasting an earnings rise of something over 6% for the full year. Vodafone's first-half adjusted eps would need to beat last year's (7.75p) -- but not by much -- to put the group on course to meet the full-year forecasts.

Back in 2010 Vodafone told shareholders it had a dividend-per-share growth target of at least 7% per annum through to the year ending 31 March 2013. So far, the company has delivered bang on 7%. Look out for the trend continuing and an interim dividend of around 3.26p.

This time last year Vodafone also announced a special dividend, alongside the ordinary interim, as a result of a dividend distribution by its US associate Verizon Wireless (NYSE: VZ.US). Verizon Wireless has not paid, or even announced, a dividend so far this year. Therefore, there will be no special dividend for Vodafone's shareholders at the half-way stage.

However, the consensus forecast suggests analysts believe Verizon Wireless will pay a dividend later in the year and that Vodafone will announce a special dividend of around 2.26p in its final results.

Operating profit and free cash flow

In last year's final results, Vodafone gave guidance ranges on operating profit and free cash flow for 2012/13, which was reiterated in the group's first-quarter update announced in July.

Vodafone said: "We expect growth in adjusted operating profit and stability in free cash flow." That may appear inconsistent with the figures in the table above, but Vodafone is working from rebased 2011/12 operating profit (£11.1bn from £11.5bn) and free cash flow (£5.6bn from 6.1bn) to take account of last year's sale of the group's 44% stake in French mobile company SFR.

In the upcoming results, adjusted operating profit for the first half of £5.75bn would put Vodafone on course for the middle of its full-year guidance range. Likewise, first-half free cash flow would be around £2.8bn.

Whatever the numbers, though, look out for any changes in Vodafone's guidance for the full year.

Southern Europe

For the past five years, despite the extreme economic problems in southern Europe, Vodafone's revenues have been supported by growth in emerging markets and in stronger countries in the developed world.

However, this year's first-quarter update saw an accelerated decline in service revenue in southern Europe.

Service revenue growth2011/12 (reported)Q1 2012/13 (reported)2011/12 (organic)*Q1 2012/13 (organic)*
Italy-1.9%-15.5%-3.4%-7.7%
Spain-8.0%-17.8%-9.4%-10.0%

* Allowing for merger and acquisition activity and movements in foreign exchange rates

In addition to the accelerating Q1 declines in Italy and Spain, there were heavy -- but unenumerated -- declines in Greece and Portugal. UK growth also turned negative in Q1: down 1.4% on a reported basis and down 0.8% on an organic basis.

These negatives weighed on overall group service revenue performance in Q1: -8.1% on a reported basis and +0.6% on an organic basis. So, it will be worth keeping an eye on whether southern Europe and the UK have deteriorated further, stabilised or recovered.

Popular income pick

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> G A Chester does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended shares in Vodafone.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

ScillyFool 06 Nov 2012 , 10:18am

I think you are concentrating too much on the negatives. What is the decline in service revenue in India, Africa and the emerging markets? Verizon Wireless dividend, will it, won't it pay? But what about it's decline in service revenue?

Good attempt to talk the price down, GA. I think the reality may be slightly different. The 13th. will tell. Unlucky for some!

vinchainsaw 06 Nov 2012 , 12:11pm

Unfortunately it has been my experience that price normally leads news... which doesnt bode too well for VOD.

Long VOD

dunkmaster 06 Nov 2012 , 4:11pm

Verizon has already paid all 4 dividends (for stock holders in the US) this year.

I think what you mean is it has not paid Vodafone a dividend.

(long VZ and T)

eccyman 06 Nov 2012 , 4:42pm

#dunkmaster - you've got slightly muddled.

A company must pay equal dividends to all shares. Vodafone don't receive any dividends from Verizon as Vodafane don't own any shares in Verizon. Vodafone and Verizon do however co-own a company called Verizon Wireless and this company sometimes pays dividends to its owners...

ANuvver 07 Nov 2012 , 12:52am

further to eccyman:

The issue is that Verizon would ideally like to pressure VOD out of its Verizon Wireless holding and a good way to encourage that would be if Wireless were to suspend dividend payments. The problem is that that would apply to both owner companies - and Verizon itself is in serious need of returns from the much more profitable and future-facing Wireless.

VOD have piled a lot of funding into Wireless in return for its 45% stake, and have played an extremely stubborn, patient game for years. They're not about to get barged out easily, or cheaply. The stand-off will run and run, but a medium-term compromise over dividends seems very likely.

Darvess 07 Nov 2012 , 4:04pm

Vodafone has an Altman Z2 of -0.24 indicating a serious risk of financial distress within the next 2 years.

Gross gearing Total Debt divided by Total Shareholder Equity is 45%

Net debt the level of debt remaining assuming all cash and equivalents were used to immediately pay of debt is 34%.

Will VOD come to shareholders for more money to keep up its growth?

The only slight positive I could find was the dividend yield, but even here the dividend cover has been steadily declining. Long term hopes are that VOD can generate revenue from fix line broadband from its purchase of Cable and Wireless, hopefully, and from additional revenue for 4G subscribers next year, too early to tell and with all these uncertainties its starting to reflect this in the share price going down.

India is very competitive and its partner is struggling, the only good news for VOD in India is that one of its up and coming competitors uninor have lost its license leaving a gap for VOD to pick up some new customers.

Short term the price has breached its 200 day moving average and has a negative MACD and low RSI, Volumes 10d v 3m is negative too at 10.2%. If I was a trader I would have shorted them to 1.66 but for a long term buyer I would buy at 1.59. I dont hold this stock.


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