Join our community of smart investors

Vodafone strides forward as Vittorio Colao bids ciao

News that the popular chief executive will retire in October overshadowed a decent set of annual results
May 15, 2018

Vodafone’s (VOD) three-year pursuit of Liberty Global seems to have delayed Vittorio Colao’s retirement. Now that he’s sealed his quarry, Vodafone’s popular chief executive has called time on his leadership – in October he’ll hand over to chief financial officer, Nick Read. The acquisition of Liberty Global’s European assets, most importantly its German telecoms business Unitymedia, is Mr Colao’s parting gift to the group which he has lead for the last decade.

IC TIP: Buy at 200p

Evidence of Mr Colao’s influence at Vodafone peppers these results. It was his tenacious deal making that bulked up the German business in 2008 and then again in 2013. Germany – now Vodafone’s biggest division – reported 1.6 per cent organic growth in service revenues, while adjusted cash profits leapt 8.3 per cent to €4bn (£3.51bn) after excluding a one-off fixed-line legal settlement.

Sidelining the portfolio’s poorest performers and prioritising higher-margin divisions also falls into Mr Colao’s legacy. His decision to sell Vodafone’s stake in US telecoms group Verizon in 2013 for $130bn (£96bn) helped the group focus on its core European assets. Meanwhile, the merger of Vodafone India with its peer Idea Cellular in March 2017 has created a business that is far more competitive in the tough Indian market. Selling the venture’s telecoms towers helped reduce its net debt by €1bn.

But it hasn’t all been plain sailing – the UK remains the market which Mr Colao never quite managed to get right. In 2017, service revenue fell 3.5 per cent on a like-for-like basis and was flat even when excluding the negative impact of new regulation. That said, recent initiatives have helped the UK outlook slightly: bidding for the mobile spectrum that could carry the fifth-generation mobile network (5G) should help attract new mobile customers, while Vodafone’s full-fibre partnership with CityFibre adds infrastructure capability to the broadband business.

Meanwhile, the wider European business will be boosted by Liberty Global’s businesses. Prior to these results, broker JPMorgan suggested that together, the two companies could generate adjusted cash profits of €19.6bn in the year to March 2020, growing to €23.1bn in the following five years. And that’s without Virgin Media. Liberty Global’s UK TV company may have side-stepped Mr Colao’s advances, but it will surely fall into Mr Read’s acquisition pipeline at some stage.

VODAFONE (VOD)   
ORD PRICE:200pMARKET VALUE:£53.3bn
TOUCH:199.7-200p12-MONTH HIGH:240pLOW: 190p
DIVIDEND YIELD:6.6%PE RATIO:14
NET ASSET VALUE:254ȼ*NET DEBT:46%
Year to 31 MarTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201438.3-5.2742.111.00
201542.21.1021.511.22
 €bn€bnȼȼ
201649.8-0.19-20.314.48
201747.62.79-7.814.77
201846.63.8815.915.07
% change-2+39-+2
Ex-div:7 Jun   
Payment:3 Aug   
*Includes intangible assets of €43.3bn, or 162ȼ a share   £1=€1.14