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Vodafone holds dividend steady

The telecoms giant’s shares ascended on a flat dividend, and updated free-cash-flow guidance
November 14, 2018

Tensions were running high ahead of Vodafone’s (VOD) half-year results to September. Concerns centred on whether the telecoms giant would be forced to cut its dividend, as its acquisition of Liberty Global’s cable assets added to an already significant debt pile. In the event, the payout was frozen, or kept “stable”, at 4.84ȼ. And, reassuringly, management plans to propose a full-year dividend of 15.07ȼ – with the potential for improvements in the long term, once leverage reaches the lower end of the group’s target net-debt-to-cash-profits range of 2.5 to 3.0 times.

IC TIP: Buy at 158p

The market came off its tenterhooks in reply, sending the shares up by nearly a tenth – although they retraced later in the day, possibly a partial reaction to the strengthening of the pound. In any case, the positive reaction was buoyed by Vodafone’s updated full-year guidance. Supporting the projected dividend schedule, bosses now expect free cash flow of €5.4bn (£4.7bn) by the end of 2019 – up from “at least” €5.2bn. Guidance was also renewed for underlying organic adjusted cash profits, with management anticipating approximately 3 per cent growth here, against the previously cited range of 1-5 per cent. Moreover, management now anticipates a €1.2bn reduction in net operating costs by the 2021 financial year, facilitated by better customer engagement and digital integration. It is also reviewing how best to manage its tower assets to shore up returns.

Reported revenues came up short of the 2017 half-year, although this came as no surprise given Vodafone’s adoption of IFRS 15, adverse currency movements, and its sale of Vodafone Qatar. Pre-tax losses reflected €3.5bn in impairments within the group’s Spanish, Romanian and Indian businesses. Italy, too, suffered from increased competition in mobile, with service revenues there falling 6.4 per cent. But Germany, the UK and ‘other Europe’ saw service revenue growth of 2 per cent, 0.8 per cent and 2.4 per cent, respectively, with the uptick in adjusted cash profits for the last region a consequence of improved cost controls and an expanding customer base.

According to Bloomberg consensus forecast estimates, analysts expect adjusted EPS of 10.5ȼ for the year to March 2019, rising to 12.1ȼ in FY2020.

VODAFONE (VOD)   
ORD PRICE:157.8pMARKET VALUE:£42.2bn
TOUCH:157.78-157.84p12-MONTH HIGH:240pLOW: 143p
DIVIDEND YIELD:8.3%PE RATIO:na
NET ASSET VALUE:226ȼ*NET DEBT:52%
Half-year to 30 SepTurnover (€bn)Pre-tax profit (€bn)Earnings per share (ȼ)Dividend per share (ȼ)
201723.12.165.34.84
201821.8-2.89-16.14.84
% change-6---
Ex-div:22 Nov   
Payment:1 Feb   
*Includes intangible assets of €40bn or 150ȼ a share  £1=€1.15