At Vodafone (VOD), share price sentiment hinges on the group’s ability to increase the amount of turnover generated from services to individuals and businesses. When organic service revenue growth dropped below 2 per cent during the second half of the year to March, investors scarpered. So a first quarter trading update revealing like-for-like service revenue growth of 2.2 per cent – ahead of broker expectations – is certainly welcome news. But chief executive Vittorio Colao’s muted enthusiasm ensured no stampede to pick up the shares at the current 220p. Ever the master at managing expectations, he concluded his summary of the period “reiterating our outlook for the year”.
There is a lot to like in Vodafone’s first quarter numbers. After stripping out the results of recently established Netherlands joint venture VodafoneZiggo, European revenue growth accelerated, driven by a particularly strong performance in Italy and Spain. The decline in UK revenues is slowing thanks to growth in average revenue per user and improvements in customer care and network quality. The Africa, Middle East, Asia, Pacific (AMAP) division, though considerably smaller, is growing at an even faster rate: its like-for-like services revenues rose nearly 8 per cent in the first quarter.
It helps that results from Vodafone India have been extracted from reported numbers due to its forthcoming merger with Idea Cellular. Service revenues dropped by 14 per cent in the first quarter due to continued competition threat from Reliance Jio. The company, which launched its services just nine months ago, has been winning customers off the more established providers with its free data introductory offers. Management at Reliance have also recently hit out at the older companies by complaining to the Indian government about price inflation.
