Market News & Analysis


Top Story

Vodafone key sales called to rebound

A recovery in organic service revenues would help soothe persistent worries over India and South Africa

Overview

The notion that Vodafone had capped lingering challenges in India could be dealt a blow when it reports half-year and quarterly results on Tuesday. Still, if promising signs of a rebound in the group’s key sales prove to be accurate, the shares could extend their modest advance this year.

The key: organic service revenues

Consensus forecasts point to a rebound in the European mobile phone giant’s main sales measure, with faster-growing regions offsetting the stagnant performance of mature regions like the UK and Germany. The average estimate in a survey compiled by Bloomberg shows organic service revenues rising 0.2% year-on-year in the second quarter compared with a 0.2% fall in Q1.

Vodacom, Liberty contract bode well

The group’s South African subsidiary, Vodacom, released half-year earnings that improved on weaker first quarter results. Service revenue in the region rose 1.5%, helping pave the way for a recovery at group level. Vodacom added users despite a weakening economy and regulatory pressure for price cuts. In another potential boost, Vodafone’s sales outlook ought to be underpinned after Liberty Global recently switched to the mobile group from BT for wholesale services. Vodafone has reportedly avoided such deals in the past due to their low margin nature. A change of heart could pave the way for a number of likely single digit percentage contributing wholesale deals, though investors will scrutinise the terms carefully.

What’s at stake?

Increasing stability in the group’s most challenged European regions of Italy and Spain will be required to keep Vodafone on track to meet a full-year Ebitda target of €13.8bn-€14.2bn, slightly lower-to-in-line with the year before, and also to keep pre-spectrum cash flow steady around €5.4bn. A rebound of service revenues would be among the clearest signs that the group can meet these targets. The ‘rebased’ dividend and other cost measures, including disposals and the proposed carve out of its transmitter infrastructure should also remain in focus given that such plans are also aimed at reducing top-line pressure.

Vodafone Idea still worries

Favourable reads on these fronts will help offset any potential write down of Vodafone’s troubled joint venture in India. Competition there scarcely seems to have abated since the company made a €7.8bn loss after being forced to merge with rival Idea Cellular last year amid a price war. The tough market combined with steep declines of shares of jointly owned Vodafone Idea raise the risk of a €1bn write down. Vodafone CEO Nick Read has pledged to avoid pumping more cash into the venture, but with fears that the business could soon become essentially worthless, the choice may eventually be to shore-up or close-up entirely.

Stock price outlook

VOD shares have bounced from a 20% slump into the middle of the year to trade 5% higher so far in 2019. It’s best chance of extending those gains hinge on lifting organic revenues as stated above and meeting Q2 total sales expectations of €10.87bn, up just 0.1%


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.