Today I am looking at the earnings prospects of three FTSE heavyweights.
Vodafone Group
Telecoms giant Vodafone (LSE: VOD) cheered the market once again this week after its half-year report smashed estimates. The West Berkshire business advised that organic service revenues climbed 1% during April-September, to £18.4bn, as activity across Europe and its emerging markets picked up speed.
Indeed, Vodafone’s sales on the continent dipped just 1% during the latest quarter, improving from the 1.5% drop in the prior three months. Meanwhile turnover in the Asia, Middle East and Asia Pacific region tore 6.7% higher in July-September, surging from 6.1% in the first quarter. Vodafone lauded the performance as “an important turning point” in its recovery story, and increased its full-year EBIDTA targets to £11.7bn-£12bn from £11.5bn-£12bn previously.
Of course recovering economic conditions in Europe, combined with leaping consumer spending power in developing regions, have significantly boosted data and voice demand in recent years. But the impact of Vodafone’s Project Spring organic investment programme on the top line cannot be overlooked — indeed, 80% of Europe now has access the company’s 4G services versus just 32% two years ago.
The vast costs of this scheme is expected to push earnings at Vodafone 14% lower in the 12 months to March 2016, although a 21% rebound is predicted for the following period as revenues surge. A P/E rating of 38.3 times for next year may be high from a conventional standpoint, but I believe Vodafone’s exciting growth strategy — not to mention chunky dividend yields — fully merits this premium.
Hikma Pharmaceuticals
With healthcare demand galloping the world over, I believe medical giant Hikma Pharmaceuticals (LSE: HIK) is a terrific pick for growth seekers. The firm has seen its share price collapse by a fifth in the past six weeks alone, but I believe this represents a great opportunity for dip buyers even in spite of recent revenues pressures — the business cut the full-year sales guidance for its Generics unit, to $150m from $175m-$200m previously, due to weak sales of its gout treatment.
Still, I believe the growth prospects of this unit remain robust, underpinned by a strong product pipeline and exciting acquisition activity — Hikma hoovered up Roxane Laboratories for $2.65bn in the summer to bolster its position in the US. And with group sales to emerging markets still climbing, Hikma is anticipated to bounce from a 19% earnings decline in 2015 with an 18% advance next year, resulting in a P/E rating of 21.7 times for 2016.
Dixons Carphone
Unlike Hikma Pharmaceuticals, Dixons Carphone (LSE: DC) has seen its share price explode in recent weeks thanks to strong retail conditions in the UK and across its European marketplaces. While the anticipation of ‘Black Friday’ deals has weighed on High Street sales more recently — sales in Britain rose just 0.9% in October, according to the BRC — this is likely to prove a temporary phenomenon as improving economic conditions boost shoppers’ spending clout.
Dixons Carphone saw like-for-like revenues leap 8% during May-July, with white goods demand in its core domestic marketplaces ticking 10% higher in the period. The business is clearly enjoying the fruits of massive store and internet investment in recent times, work which is expected to deliver earnings expansion of 7% and 12% for the years ending April 2016 and 2017 correspondingly. A consequent P/E ratios of 14.8 times for next year make Dixons Carphone a great value selection, in my opinion.
