Why Vodafone Group plc Should Be A Winner Next Year

The future looks good for Vodafone Group plc (LON: VOD).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alan does not own any shares mentioned in this article. The Motley Fool has recommended shares in Vodafone.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »