With the successful sale of its share of Verizon Wireless to Verizon Communications back in September 2013, followed by rumours that big US telecoms firms like AT&T were chomping at the bit to launch a takeover for the rest of the company, Vodafone (LSE: VOD) (NASDAQ: VOD.US) was a darling amongst investors.
But what a difference a year can make in the fickle world of investing.
Shares falling
Vodafone’s share price peaked above 240p in January 2014, but it’s since slid back to 205p today for a modest 7% rise over 12 months.
But what about the FTSE 100’s other big telecoms player, BT Group (LSE: BT-A) (NYSE: BT.US)? Here’s how the two square up:
| Year to Mar | BT Group | Vodafone |
|---|---|---|
| EPS growth 2014 | +7% | -13% |
| P/E |
13.5 | 12.6 |
| Dividend Yield |
2.9% | 5.0% |
| Dividend Cover |
2.59x | 1.59x |
| EPS growth 2015* |
+3% | -63% |
| P/E |
13.0 | 31.2 |
| Dividend Yield |
3.4% | 5.8% |
| Dividend Cover |
2.31x | 0.57x |
| EPS growth 2016* | +7% | +2% |
| P/E |
12.1 | 30.5 |
| Dividend Yield |
3.9% | 6.0% |
| Dividend Cover |
2.17x | 0.56% |
* forecast
Steady profit growth
Since 2009, BT has recorded five straight years of earnings and dividend growth, and there are two more years of the same to come if forecasts are near the mark. And over that period, the share price has stormed up by 170% against 40% for the FTSE — the Vodafone price is up 55% over the same period.
BT has been recovering impressively from the recessionary days when payments to address its pension fund deficit were proving a serious drain on cash, and with asset values having risen some way from the depths of 2009, those dark days look to be well behind us now — and the company recently announced reinsurance measures to help deal with uncertainty due to rising life expectancy.
And when it came to first-quarter results this year, BT reported a 7% rise in adjusted pre-tax profit with a 10% rise in adjusted earnings per share. Net debt was also down, by almost £1bn to £7bn.
Falling revenues
In contrast to that picture of health, Vodafone has been suffering from falling service revenues for the past year or so, with a 4.2% drop reported at Q1 time this year following on from a 4.3% slide at for the full year ended March.
There are gains in developing countries where basic services are on the rise, but Europe saw a 7.9% fall in the latest quarter.
Vodafone is in a transition phase of investing in 4G networks, but doesn’t expect to achieve complete coverage of its five main European markets until 2017.
On top of that, Vodafone has downgraded its dividend policy to only try to match the previous payment each year, although even that would be far from covered by forecast earnings for the next two years.
Only one winner
Best long-term investment? It’s looking like an easy win for BT.
