UK mobile network giant Vodafone (VOD) has spelled out first quarter to 30 June trading in an update today that looks mixed at first glance. But on closer inspection there is more encouragement to be taken, and the shares are rallying 4.5% to 235.3p in the market.
The first things to say is that these are maiden figures in euros rather than sterling, so investors need to be careful about comparing like-for-like with previous announcements, while it's also worth noting that only revenues and operational metrics are revealed.
At the headline level the figures show a reported 4.5% revenue decline to €13,377 million, but a 2.2% organic service revenue improvement, interestingly, it's second quarter on the trot of reasonable organic growth.
But the UK is letting the side down, organics falling 3.2%, or 11.4% when the plunged pound is taken into account.
But a vital point that investors should take is that management firmly believe the firm can meet full year guidance, which should ease fears that mobile competition could impair growth, margin recovery and, hugely important, keep paying the near 5% yielding dividend (a point Shares has previously flagged).
4G customers doubled year-on-year to 52.5 million, out of a total 462 million customer base, with penetration reaching 30% in Europe. And the big shift to data? Going great guns it seems, mobile data traffic is up 63%.
Also interesting is that the rate of broadband adds is picking up. Around 28,000 were added in the quarter versus 20,000 between January and March. That said, it's still tiny, just 137,000 in total fixed line broadband subscribers, effectively miniscule versus both the UK mobile total (18 million) and the Vodafone global broadband total, of about 13.7 million.
Context is also needed in the potentially exciting internet of things (IoT) space. Global IoT connections increased 39% year-on-year and revenue is growing at about 20%, but as TechMarketView analyst Mart Courtney estimates, this side of the business represents only 1% to 2% of Vodafone’s total revenue at most.
Encouragingly for the UK, Vodafone reckons the billings switch over problems it has been struggling with seem to be easing, the group suggesting that revenue has bottomed out.
Nice to see a return to growth in Spain too, that's the first time since 2008.
So still on track to match expectations this year to 31 March 2017. According to analysts at IT analysis boutique Megabuyte, that means EBITDA (earnings before interest, tax, depreciation and amortisation) to grow between 3% and 6% organically, implying a mid-point of £12.6 billion, or €15.95 billion in the now reported euro. Free cash flow (FCF) after capex (but before nasty bits like new spectrum and typical restructuring costs) to be at least €4 billion (£3.2 billion), with capex likely in the region of mid-teens percentage of revenue, versus 21% in fiscal 2016.
Russ Mould, investment director at AJ Bell says:
'Mobile telecoms giant Vodafone beat expectations with a 2.2% increase in first quarter organic service revenue against consensus expectations for growth of 1.9%. The company is putting together some impressively consistent performance.'
'This marks the eighth consecutive quarterly increase in its main growth metric and guidance is reiterated for the March 2017 financial year. The same metric is up 0.3% in Europe despite regulatory pressure on revenue from data roaming charges. The UK is the main laggard, down 3.2%, although there is no update on mooted plans to redomicile the business in the wake of Brexit,' Mould concludes.