Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) released its interim management statement last week, which revealed that the company continues to struggle in several key markets.
Indeed, the company reported that during the first half of this year group service revenue has declined a further 4.2%. Revenue within Vodafone’s European market fell 7.9% on an organic basis. However, Vodafone’s revenue rose 4.7% within its African, Middle East and Asia-Pacific regional markets, although this was not enough to offset European declines.
Spending update
Within the interim report, Vodafone’s management also updated the market on how the company’s spending plans were progressing. For example, management revealed that the much touted, multi-billion pound Project Spring network investment programme has taken off quickly.
Thanks to Project Spring, Vodafone’s European 4G coverage increased 52% and data traffic jumped 73%. Additionally, Vodafone’s unified communications strategy across Europe saw 190,000 new customers sign up to residential broadband connections across Germany, Italy, Spain and Portugal.
Still, this growth in data traffic and broadband connections failed to offset falling voice and text revenues.
Another update
Last week also saw an update from Vodafone’s smaller, UK peer, Talktalk (LSE: TALK).
Talktalk released an interim management statement for the 3 months to 30 June and the company continues to show impressive progress.
The results revealed Talktalk’s 6th consecutive quarter of year on year revenue growth, with revenue expanding 3.1% during the quarter. What’s more, Talktalk added 24,000 new mobile and 34,000 new fibre customers during the period, along with 185,000 new pay-tv customers.
Talktalk’s management also reiterated guidance to achieve compounded annual revenue growth of 4% from 2014 to 2017 — the kind of growth Vodafone can only dream of.
Time to sell?
As Talktalk continues to outperform while Vodafone struggles, it might be time to sell Vodafone in favour of Talktalk.
For income investors, Talktalk appears to be a much safer investment than Vodafone. In particular, Talktalk is set to support a dividend yield of 4.3% next year, a payout which will be covered 1.1 times by earnings per share.
On the other hand, Vodafone’s dividend yield is set to hit 5.6% next year. However, this payout will cost the company 11.40p per share, while City analysts only expect the company to report earnings of 6.80p per share. Unfortunately, this implies that Vodafone’s current dividend payout is uncovered by earnings and unsustainable.
Further, Vodafone currently trades at a forward P/E ratio of around 28, twice the FTSE 100 average of around 14. Talktalk meanwhile trades at a forward P/E of 23, which may still seem expensive for some. Nevertheless, with earnings per share expected to grow by 55% during 2016, the company’s shares could be worth this premium valuation.
All in all, as the Talktalk growth story continues, the company’s shares appear to be the better pick.
