The share price of Vodafone (LSE: VOD) is currently up 2.6% following publication of an interim management statement for the quarter ending 30 June 2014. Group service revenue was down 4.2%, with the fall coming entirely from Vodafone’s European market — it was down 7.9% on an organic basis, with the drop being offset by a 4.7% rise (also organic) in the company’s Africa, Middle East and Asia-Pacific (AMAP) region.
However, the company commented that there were signs of improvement in Germany, Italy and Spain (down 4.9%, 16.1% and 3.2%), but reported that business in Spain was weaker (down 15.3%) because of renewed competition. India and Turkey both strengthened, up by 10.3% and 3.7% respectively. (All figures on an organic basis.)
Vodafone said that Project Spring — its £19bn network investment programme — has “taken off quickly”, with an increase in the company’s European 4G coverage of 52%, with 6.7m 4G customers. Group data traffic saw a year-on-year increase of 73%.
It also reported “significant progress” in its unified communications strategy, with approximately 190,000 new residential broadband connections, and continued growth in Germany, Italy, Spain and Portugal. The company also said that integration of Kabel Deutschland is now under way, which will result in a fully integrated operator in the German market. Vodafone’s recent acquisition of Ono is aimed at creating a similar offering in Spain.
Commenting on the results, CEO Vittorio Colao said:
“The year has started in line with our expectations. Through our commercial actions and investment, our performance is beginning to stabilise quarter-on-quarter in several of our European markets, with customer appetite for 4G services clearly growing. We also see very strong growth in demand for data in India. In unified communications, we have made further good progress on our strategy, continuing to implement our plans in several markets, and our customer growth trends demonstrate the strength of our commercial execution.”
At its current share price of 203.2p, Vodafone stands on a forward price-to-earnings ratio of around 28 — twice the FTSE 100 average of around 14. So, despite a what currently seems a very generous forward yield of close to 6%, Vodafone’s current valuation might seem rather too rich for many people — especially as the dividend may come under pressure from a 60% fall in earnings forecast for 2015.
