British-based mobile phone giant Vodafone Group Plc raised full-year profit and sales forecasts on Tuesday after a strong set of half-year results topped consensus expectations, sending its shares climbing.
Vodafone, the world's largest cell phone group by revenue, nudged up its forecast range for adjusted operating profit to 9.5 billion to 9.9 billion pounds ($19.8-$20.6 billion), from 9.3 billion-9.8 billion and raised revenue targets to 34.5 billion-35.1 billion pounds from 33.3 billion to 34.1 billion. The company, which has 241 million customers, also lifted free cashflow forecasts by around 10 percent to between 4.4 billion and 4.9 billion pounds on the back of strong emerging markets growth and solid mobile data revenues that supported growth in core European markets.
Pressure had grown on Vodafone to upgrade forecasts after Spain's Telefonica (TEF.MC: Quote, Profile, Research) triggered a re-rating of the entire sector with an upbeat four-year outlook and France Telecom (FTE.PA: Quote, Profile, Research) raised 2007 cash and margin targets last month.
But with Vodafone's earnings per share of 6.42 pence topping consensus forecasts by around 10 percent, analysts started to rejig their numbers. Its shares climbed 3.57 percent to 188.5 pence by 1215 GMT, the strongest performer on the DJS European Telecoms stocks index.
Vodafone continues to show good progress on revenue growth, profit conversion and cash flow conversion, said Wesley McCoy, Investment Director at Standard Life Investments, one of Vodafone's largest investors with a 1.7 percent stake.
It is very encouraging to see increases to their future guidance and after some difficult years, their core Western European businesses appear to have stabilised.
EMERGING MARKETS SHINE
Vodafone said strong revenue growth of almost 40 percent from emerging market operations in India -- which contributed its first full quarter -- Turkey, Egypt and South Africa again bolstered pedestrian but solid growth in Europe of two percent.
Vodafone's business in India, where it owns a controlling stake in one of the country's top mobile phone operators, Vodafone Essar, saw revenues rise by 53 percent -- although this missed some forecasts of up to 60 percent growth.
Chief Executive Arun Sarin noted the company was winning 1.6 million new customers per month and had seen its customer base swell to 35 million in India. Vodafone also saw revenues grow by over 33 percent in Egypt, 24 percent in Romania and by 19.6 percent in South Africa.
But with the bulk of profits still coming from competitive European markets, analysts also focused on organic growth in European mobile data services such as texts, photos and music, which surged almost 50 percent to 1.0 billion pounds.
Aside from upgrades to headline numbers, the biggest story is mobile data, said Dresdner Kleinwort analyst Robert Grindle. Further progress on this front will see confidence in Vodafone shares ramp.
As expected, good revenue growth in Spain and Britain was offset by declines in competitive Germany and Italy.
Sarin, who said he was eyeing acquisition opportunities in Asia, Africa and central and eastern Europe, said he expected clarity on Vodafone's hopes of increasing its 50 percent stake in South African joint venture Vodacom in a couple of months.
Some analysts expect the company, which hopes to buy more Vodacom shares from joint venture partner Telkom, to raise its Vodacom stake to 80-85 percent for around 3.5 to 4.0 billion pounds -- possibly in a matter of weeks.
Vodafone posted first-half earnings before interest, tax, depreciation and amortisation (EBITDA) of 6.565 billion pounds and operating profit of 5.2 billion on revenues of 17 billion. Vodafone also raised the dividend by six percent to 2.49 pence.
Analysts had expected EBITDA of 6.4 billion pounds, operating profit of 4.95 billion and revenues of 16.85 billion pounds on average.