Jefferies International: Vodafone fiscal Q1 earnings show promise

Jefferies International equity analysts appeared bullish on Vodafone after the operator noted that European price trends improved during its fiscal Q1--the three months to end-June--and that revenue from Middle East, Africa and Asia Pacific increased year-on-year.

In a research note emailed to FierceWireless:Europe, the investment bank's analysts said they were encouraged by Vodafone's "confident commentary about the pricing environment in Europe becoming more stable" during the quarter, and noted that a year-on-year decline in European group service revenues of 1.5 per cent was lower than the 1.8 per cent expected by most analysts.

Jefferies' analysts were also buoyed by Vodafone's talk of progress in its Project Spring programme, a two-year £19 billion (€26.8 billion/$29.4 billion) investment project in the operator's fixed and mobile infrastructure.

Vodafone said it had completed 71 per cent of its European mobile build as part of the programme and noted that its LTE (4G) coverage in the region hit 75 per cent by end-June.

The analysts said the benefit of that rollout work is now "coming through in lower contract churn rates," and also welcomed Vodafone's focus on its mobile networks after previously noting that "strong growth in low-margin fixed-line carrier had been a material tailwind for service revenue growth in recent quarters."

Jefferies' analysts also highlighted Vodafone's continued success in the European enterprise sector, which "delivered revenue growth for the second successive quarter" with a rise of 1.8 per cent year-on-year. That growth suggests "that this geographically integrated part of the group continues to outperform more nationally organised rivals," the analysts wrote.

The analysts were less confident regarding Vodafone's European data usage figures, noting that an overall rise of 10 per cent quarter-on-quarter masks problems in Germany and Italy, where usage grew 3 per cent and 4 per cent respectively compared to Vodafone's fiscal Q4 "despite significant 4G promotions."

Overall, Vodafone's reported European group service revenues declined 6.2 per cent year-on-year to £5.9 billion in its fiscal Q1, leaving its operations in Middle East, Africa and Asia Pacific to pick up the slack with a year-on-year rise of 4 per cent to £2.9 billion.

Vittorio Colao, group CEO, said the company had started its fiscal year well, with emerging markets maintaining "strong momentum" and more European businesses "returning to growth, as customer demand for 4G and data takes off."

The CEO also noted that Vodafone's Project Spring investment is paying off in the form of improved service for subscribers, resulting in lower churn among contract customers and a stabilisation in mobile ARPU trends.

For more:
- view Vodafone's fiscal Q1 earnings release [PDF]

Related articles:
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