Today my look at the omens for our top companies takes me to Vodafone (LSE: VOD) (NASDAQ: VOD.US), which is surely the world’s brightest mobile phone company. Isn’t it?
Before I tell you what I think, here’s a look at how the company has been doing and at what the City analysts’ rune-casting has come up with:
| Year to Mar |
EPS | EPS Growth |
Dividend | Div growth |
Yield | Cover |
|---|---|---|---|---|---|---|
| 2009 |
17.17p | +37% | 7.77p | +3.5% | 6.3% | 2.2x |
| 2010 | 16.11p | -6% | 8.31p | +6.9% | 5.5% | 1.9x |
| 2011 | 16.75p | +4% | 8.90p | +7.1% | 5.0% | 1.9x |
| 2012 | 14.91p | -11% | 9.52p | +7.0% | 5.5% | 1.6x |
| 2013 | 15.65p | +5% | 10.19p | +7.0% | 5.5% | 1.5x |
| 2014 (f) |
15.7p | 0% | 10.4p | +2.1% | 4.6% | 1.5x |
| 2015 (f) |
16.6p | +6% | 11.0p | +5.8% | 4.8% | 1.5x |
First thing you might notice is that there’s no growth in earnings per share (EPS) forecast, so how does this make for a “winner next year” you might ask?
Well, there’s a couple of things. Firstly, looking beyond just one year we have a 6% rise forecast for 2015, and as it’s a business that has large and variable technology costs we should not expect Vodafone’s earnings to progress smoothly from year to year — we can see from the above table that EPS has been up and down.
We also have that nice windfall to come from the Verizon Wireless disposal, and shareholders have already enjoyed a 20% share price rise since Vodafone first confirmed the Verizon rumours on 29 August — and that’s easily enough to make 2013/14 a winning year for me!
Back to the forecasts
Looking at how the City’s forecasts have changed, the answer is not very much — predictions have been pretty consistent over the past year. And of those analysts voicing their opinions, about half have the shares rated as a ‘Hold’, with most of the rest, all bar a couple of dissenters, offering ‘Buy’ or ‘Strong buy’ urgings.
Vodafone is one of those companies that isn’t too hard to predict, as it gives timely and informative guidance — and I do like that about a company.
At the time of its 2013 annual results, Vodafone had issued guidance of a £12-12.8bn operating profit for 2014, with free cash flow of around £7bn. July’s Q1 update reiterated that, saying “trading in the first quarter was consistent with management’s expectation underlying the outlook statement for the 2014 financial year“.
Future cash
Where is next year’s money going to come from? Well, a lot of it will be from expansion into developing parts of the world. Last year saw revenue from India grow by 10.7%, with Turkey up 17.3%. And Vodafone’s majority-owned African arm, the Johannesburg-listed Vodacom, enjoyed a 3% rise.
To some extent that was countered by revenue squeezes in the more saturated European markets. But that’s during an economic squeeze, and we’re seeing continuing signs of expansion across the continent — as an example, the recent Kabel Deutschland acquisition has opened up market of 15.3 million potential new customers for Vodafone’s broadband-inclusive packages.
Dividends
There is one caution that must be sounded, in the shape of dividend policy change. With its last full-year results, Vodafone said:
“After over 22% growth in the ordinary dividend per share over the last three years, the Board is focused on continuing to balance the long-term needs of the business with ongoing shareholder remuneration, and going forward aims at least to maintain the ordinary dividend per share at current levels.”
Looking back at those last few years of figures, a commitment to do no more than maintain the dividend was perhaps not surprising — the dividend cover was falling, and Vodafone does need to focus foremost on the cash needs of the company itself for its future growth.
Vodafone is a constituent of the Fool’s Beginners’ Portfolio, and I’m confident it will help us to a nice winning streak.
