Analysts are calling for Vodafone (VOD) to move on from its focus on shareholder returns and embrace a more ambitious growth strategy.
Europe’s second largest telco by market cap, after Deutsche Telekom, at the weekend called on European regulators to loosen rules to allow further industry consolidation. Vodafone is believed to be interested in a tie-up with the UK’s number four mobile network Three. Regulators blocked 02’s merger with Three in 2016 on competition grounds.
‘The focus now shifts to growth, reflecting better networks and services, operational improvements, and continued portfolio optimisation and acquisitions,’ said Megabuyte analyst Philip Carse.
For the time being, Vodafone is expected to counter the threat from its major fully converged competitors BT (BT.A) and Virgin Media O2 with its revamped CityFibre and existing Openreach fibre to the premises partnerships.
‘It will be interesting to see whether Vodafone can really grab the fibre broadband opportunity given a fairly woeful performance to date,’ said Carse.
Vodafone chief executive Nick Read admitted that there is ‘more to do’ and said priorities in the immediate future would be to build momentum in Germany and turn around the operation in Spain.
MODEST BEAT SEES SHARES TOP FTSE 100
The growth call comes as Vodafone tweaked up forecasts for the 2022 financial year (to 31 March) after what it said was a good first half. Revenues for the six months to end June 2021 rose by 5% to €22.5 billion driven by Europe and Africa, with underlying earnings 6.5% up at €7.57 billion. Yet within that, service revenues grew just 2.8% to €19 billion.
Based on that, earnings for the year will be at the upper end of guidance, said Vodafone. That implies underlying profits growth of between 4.5% to 5.9% to between €15.2 billion to €15.4 billion. Adjusted free cash flow will also be marginally better than expected at around €5.3 billion.
Half year pre-tax profit fell to €1.28 billion from €1.47 billion, with the interim dividend maintained at €0.045.
Vodafone shares have been awful performers in recent years, losing around 6.5% in 2021 ahead of today’s announcement, and halving since the close of 2017. But for the time being investors seem willing to be patient. Vodafone shares topped the FTSE 100 leaderboard on Tuesday, rallying 5.9% to 119p.
