In this article I am looking at why I believe rising emerging market exposure should blast Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) earnings higher in coming years.
Revenues in emerging markets stride higher
The tale of worsening regulatory difficulties and pressure on phone users’ wallets in Europe has long been a millstone around Vodafone’s neck. However, the company continues to witness surging demand in key developing markets, and saw organic service revenues from the Africa, Middle East and Asia Pacific (AMAP) region rise 5.5% during September-December.
The company commented that turnover rose as a result of a ‘higher customer base, increased customer usage and successful pricing strategies,’ and witnessed solid growth in India, Turkey, Qatar and Ghana in particular.
Vodafone’s bubbly activity in these regions bodes well for its long-term revenues outlook, the firm latching on to an environment of increasing disposable incomes and exploding population growth.
The company has been busy on the acquisition trail to boost its exposure to these geographies, and just last month forked out £1bn to purchase Vodafone India. The incredible growth potential of this country alone was underlined by Sony this week, who said that they expect to double the number of handsets they sell in India this year to 4 million, as they expand their distribution network in the country by a third.
Vodafone is also planning to throw plenty of cash at emerging geographies through its £7bn Project Spring organic investment scheme. Indeed, the business has earmarked £1.5bn for the AMAP territory in order to build 3G coverage across major cities and regions, and plans to throw additional cash at building its fibre network in the territory.
Vodafone undoubtedly faces the prospect of heavy earnings weakness during the next couple of years due to enduring difficulties in its key European markets. Indeed, City analysts expect the telecoms giant to record an 8% earnings decline for the year concluding March 2014, results for which are due on Tuesday, May 20. And a 35% slip is anticipated during the following 12-month period.
But I believe that Vodafone’s rising success in developing regions, combined with a gradual recovery in economic conditions in Europe, makes it a strong candidate for long-term growth. Driven by sizeable organic investment and the prospect of further acquisition activity, in my opinion the telecoms giant is in a great position to enjoy spectacular global growth.
