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 2011/12 | FY 2011/12 | H1 2012/13 | Forecast FY 2012/13 | Forecast FY growth |
|---|
| Revenue (£bn) | 23.52 | 46.42 | ? | 44.62 | -3.9% |
| Adjusted operating profit (£bn) | 6.04 | 11.53 | ? | Range: 11.1-11.9 | |
| Pre-tax profit (£bn) | 8.01 | 9.55 | ? | 10.16 | +6.4% |
| Adjusted earnings per share (eps) | 7.75p | 14.91p | ? | 15.83p | +6.2% |
| Dividend per share | 3.05p + 4p special | Final: 6.47p Total: 13.52p | ? | 10.19p + 2.26p special Total: 12.45p | -7.9% (+7.0% excluding specials) |
| Free cash flow (£bn) | 2.62 | 6.11 | ? | 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 growth | 2011/12 (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
Vodafone is a popular dividend share with small investors. The company is also a favourite of top City investor Neil Woodford, the man whose equity income funds have beaten the wider market by over 300% in the last 15 years.
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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.
