Vodafone @ 176p, +3.15p ( +1.82%)
Vodafone delivered half year results today for the 6 months ending 30 September 2011.
Looking at the comparables:
- Half year revenues came in at £23.52bn (£22.603bn), +4.1%
- Operating profit up sharply at £6.478bn (£2.615bn), +147.7%, due mainly to the sale of Vodafone's 44% interest in SFR to its majority shareholder Vivendi for £6.8bn.
- Profit for the period "down" to £6.644bn (£7.504bn), -11.5% mainly due to the timing of capital investment
- Net assets/shareholders interests down to £85.272bn (£90.543bn), -5.8% following sales of minority interests.
The company also stated the following highlights:
- Q2 Group organic service revenue growth +1.3%; Europe -1.2%, AMAP +8.2%
- H1 EBITDA up 2.3% to £7.5 billion; EBITDA margin 32.0%, down 0.6 percentage points, as expected
- Adjusted operating profit £6.0 billion; full year guidance now improved to £11.4 - £11.8 billion
- Free cash flow £2.6 billion; full year guidance of £6.0 - £6.5 billion confirmed
- Interim dividend 3.05 pence, up 7.0%; special dividend of 4.0 pence to be paid at the same time
So free cash flow range guidance confirmed for the full year along with an improvement to the previous guidance for operating profit (previously £11 - £11.4bn).
Overall revenues were up by 1.3% consisting of: European revenues down 1.2% due to price reductions in Spain but up 8.2% in Africa, Middle East, Asia Pacific (AMAP), despite inertia in Australian and Indian markets.
The company also re-iterated and detailed current progress against its strategy which is to:
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Focus on key areas of growth potential;
The single biggest industry opportunity identified as Mobile Data. Revenues from which were up 23.8% to £3.1bn representing 14% of Group service revenue supported by smartphone penetration at 21.7% of European customers.
Emerging market exposure with AMAP and Turkey key drivers.
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2.
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Deliver value and efficiency from scale;
Traditional economies of scale being pursued with shared technology platforms and procurement strategies.
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3.
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Generate liquidity or free cash flow from non-controlled interests;
44% stake in SFR sold along with the 24.4% stake in Polish operator Polkomtel. £4bn of the SFR proceeds will go on a share buyback.
Verizon Wireless (the second largest wireless operator in the US), a joint venture with Verizon Communications remains a key investment and in July announced a special dividend worth £2.8bn to Vodafone which will go towards debt reduction and the 4p second interim (special) dividend.
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4.
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Apply rigorous capital discipline to investment decisions.
Continued intention to enhance Return on Capital and maintain A credit rating.
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The 1st interim dividend amounts to £1.538bn and the special a further £2.017bn which is around 53.5% of the declared profit for the period.
Cash and equivalents is showing as £6.975bn.
Net debt also continues to fall as a result of cash generation.
On the downside:
I did notice some exposure to Greece, along with Portugal and Ireland which the company says continue to be affected by well publicised economic factors.
There also continues to be an ongoing potential tax liability related to the purchase of Vodafone India.
The company continues to fight the liability through the legal system and there should be a supreme court decision before the year-end.
To that effect Vodafone has put aside $2.5bn in provisions but there remains a risk that this liability could be doubled!
Vodaphone is a company that has changed quite a bit over the years since its grand expansion during the Technology, Media, and Telecoms boom of the late 90's when it seemingly sought world domination but saddled itself with significant debt as a result.
Remember the auctions for 20 year 3G licenses completed in April 2000 (just before the Tech bubble burst).
Vodafone paid £5.964bn for theirs prior to going on the convoluted acquisition trail which saw it take over Mannesman, which had itself just taken over a hugely overpriced Orange in a wasted attempt to protect itself from Vodaphone (
www.gsmhistory.com: Great Moments in Mobile Radio History from the inside – The 3G Auctions).
It all proved to be very good business for the then Labour Government and it is a travesty that the then Chancellor, Gordon Brown couldn't have been more prudent with the £22.47bn auction proceeds.
A BBC article of the time suggest that the proceeds were the equivalent of £400 per person in the UK but that the Government planned to pay down the National debt (
http://news.bbc.co.uk: UK mobile phone auction nets billions).
Just where did it all go?
And, taking a further lesson from history when considering what is a fair price, how long has it taken for technology to catch up with the 3G licensed airwaves to eke some kind of profit for the investment.
To some degree the company's enormously expensive expansion strategy has been justified as the evolving company has not seemed to struggle to maintain cash flows to support debt servicing and repayment, and dividends.
Revenues have grown steadily over the last 5 years and the company looks just about ready to grow profits again through the increasing use of smartphones, a focus on controllable and higher margin interests, emerging markets, and its stake in Verizon Wireless.
The special dividend from Verizon Wireless is also very welcome and could yet be a sign of things to come.
Of course there are a number of risks and potential liabilities such as from the tax case involving Vodafone Essar (India), global/regional recession, and regulatory pressure on charges.
But, the company has behaved like a utility cash cow in the last few years quietly going about its business selling assets, servicing debt, and maintaining a generous dividend.
This last few years has also seen the company derated considerably particularly when one remembers its heady days as the biggest company in the FTSE with a capitalisation in excess of £300bn (2011: £89bn).
Its recent single digit P/E status has assumed very little growth and even then the price has only been propped up by a generous dividend payout.
I have mentioned Vodafone a few times in previous posts and finally added them to the portfolio in August at 160.334p.
At today's closing price of 176p the shares have increased by 9.22% over 3 months.
In addition, the shares are due to go ex-dividend (for the interim and special), on the 16th November which, at 7.05p (3.05p + 4p) will give a further 4.39% in dividends.
With a forward P/E of 11.1 and a forecast yield of 7.2%, the shares aren't as cheap as they have been but global depression aside the company has a strong geographic spread and significant exposure to the burgeoning uptake of smartphones which look set to be an essential "utility" with an exciting future that might just be taking off.
