24th Jul 2023 10:16
(Alliance News) - "The jury is still out" on Vodafone Group PLC, though its shares got a boost at the start of the week, with investors impressed by promising signs as the telecoms firm's turnaround continues.
Newbury, Berkshire-based firm reported growth in organic service revenue, backed yearly guidance but said there is "much more still to do" as far as its "action plan" goes.
Vodafone shares were 4.4% higher at 76.76 pence each in London on Monday morning, the second-best FTSE 100 performer behind Ocado Group PLC.
"The transformation at Vodafone is in its infancy, and there's a long way to go - but tentative signs of green shoots are emerging. Europe squeezed out overall growth in service revenue, as declines eased in Germany and Italy. Germany remains a key battleground and focal point of the transformation, after more than EUR20 billion of investment it's vital that trends continue to improve from here and the region returns to growth sooner rather than later," Hargreaves Lansdown analyst Matt Britzman commented.
Vodafone said its service revenue for the three months that ended June 30 was EUR9.11 billion, down 4.2% from the EUR9.51 billion at the same point the year before. On an organic basis, however, it rose 3.7% on-year.
Total revenue in the first quarter was down 4.8% at EUR10.74 billion from EUR11.28 billion the prior year, but also up 3.7% organically.
Full-year guidance for adjusted earnings before interest, tax, depreciation, and amortisation after leases was unchanged at around EUR13.3 billion.
Chief Executive Margherita Della Valle said: "We have delivered particularly strong trading in our business segment and returned to service revenue growth in Europe. Looking ahead, we have taken the first steps of our action plan focused on customers, simplicity and growth, but we have much more still to do."
interactive investor analyst Richard Hunter said the company is aware "it has a mountain to climb".
"Higher energy costs in the background have not helped, while a deteriorating performance in Germany, which accounts for around 26% of revenues, has been seen amid intense competition and new legislation in the pipeline. The decline in revenues of 1.3% for the last three months is an improvement from the 2.8% drop reported in the previous quarter and was largely driven by price increases in the broadband service, although this has inevitably come at the cost of losing some cost-conscious customers," the analyst said.
"In the meantime, net debt remains something of a concern to investors, although the group is reportedly comfortable with the current levels. The dividend yield of 10.6%, partly the result of a declining share price, is of scant solace to long-suffering investors even if the yield of itself is extremely punchy. The shares have reacted positively at the open to the glimmers of hope which have been reported, but there remains a significant amount of ground to make up."
Hunter added: "Investors will be hoping that the positive noises emanating from the group prove to be the thin end of the wedge, but in the meantime the jury remains out, with the market consensus of the shares as a hold likely to remain intact."
By Eric Cunha, Alliance News news editor
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