Half-year results released today by Vodafone (LSE: VOD) (NASDAQ: VOD.US) seem to have made a significant impression on investors, with sentiment improving and shares in Vodafone rising by almost 5% on the day.
Improved Performance
The major reason for the share price gain is an increase in Vodafone’s guidance for the full year. While it had previously forecast an EBITDA of between €11.4 billion and €11.9 billion for the full year, it has increased this slightly so that it now expects EBITDA of between €11.6 billion and €11.9 billion.
This increase has taken place largely as a result of what Vodafone is calling a ‘stabilisation’ in its key markets in Europe. For example, it has experienced improved service revenue in Germany, Italy and the UK, with respective figures of -3.4%, -9.7% and -3% being better than expected and better than in the first quarter of the year.
Together, this has meant that group organic service revenue is down 1.5% in the quarter, which is a marked improvement on the first quarter of the year, where it declined by 4.2%. This improvement has been possible due to improved commercial performance and the reduced impact of mobile termination rate cuts.
Furthermore, with Vodafone also reporting that its Project Green investment programme is on track and progressing as expected, the company has the potential to grow over the medium to long term. As highlighted by its CEO, Vittorio Colao, the €19 billion programme is seeing customers across Europe being upgraded to 3G and 4G, which is causing many of them to demand more data, which is good news for Vodafone’s top and bottom lines.
Looking Ahead
Clearly, the situation in the Eurozone remains highly uncertain. Indeed, while Vodafone’s European markets have performed better than expected, they remain weak and relatively volatile. As such, there are likely to be more lumps and bumps ahead for the company, adding to a tough year for the telecoms giant: shares have fallen by 8.4% over the last six months, a far worse performance than the FTSE 100 over the same time period, with the leading index down 2.7% in the last six months.
However, with Vodafone’s half-year results also confirming that dividends per share will be raised by 2%, it means that shares in the company now yield 5.2% and continue to offer highly enticing income potential.
Furthermore, with its investment programme seemingly delivering increased demand for data and the potential for its main market, the Eurozone, to stabilise further over the medium term, Vodafone could prove to be a highly profitable long-term investment.