Mobile operator Vodafone (VOD) jumped in early trade on Tuesday after reporting largely in line full year results and, vitally, sticking to its €0.09 per share dividend promise.
Investors are clearly hugely relieved given the large numbers of FTSE 100 companies to cut or axe shareholder payouts thanks to coronavirus cash flow pressures.
PAYOUT SURVIVES
‘Such is investors’ thirst for income after dividend cuts, suspensions, deferrals or cancellations from 43 FTSE 100 members - including Land Securities (LAND) and Morrisons (MRW) today - that Vodafone’s shares are up strongly in early trading, thanks to the 6.5%-plus dividend yield they offer,’ said Russ Mould, AJ Bell investment director.
Vodafone shares rallied more than 8% to 122.44p, to head the FTSE 100 leader board on Tuesday.
Vodafone can afford to maintain its payout since free cash rose more than 12% to €4.9bn in the year to 31 March 2020 with expectations of at least €5bn of free cash flow this year to March 2021.
KEY FIGURES
Revenue rose 3% to a fraction shy of €45bn while earnings before interest, tax, depreciation and amortisation (EBITDA) rose 2.6% to €14.9bn. That means the group’s €42.2bn net borrowings are running at approximately 2.8-times EBITDA, substantial ‘but given the resilience of the model, not a worrying figure,’ said Edison’s Dan Ridsdale.
The big question is will the balance sheet allow the funding flexibility for the long-term infrastructure investment needed to make the most of the explosion in data demand. Superfast fibre networks and 5G mobile are likely to become the norm down the line.
One way Vodafone could raise extra cash would be to spin-out its European mobile masts business. This has been mooted for some time and the company now admits that it is very much an option, possibly in the next two or three months.
IMPROVING UK
‘In between the puts and takes of such a large and diverse organisation, Vodafone continues to edge forward, with improving growth and margins, the latter reflecting an ongoing digital transformation project,’ said Philip Carse of the analysis boutique Megabuyte.
‘Interestingly, the UK is now part of the solution rather than, historically, the problem,’ he added.
