Latest results further cement the need for restructuring sooner rather than later.
Headwinds seen in 2018 continue to cause turbulence for Vodafone
- Group revenues fall by 6.8% to €11bn.
- Restructuring plans are aimed at digitising the group to meet expected surge in data demand.
- We continue to recommend the shares as lower risk ‘buy’.
Many factors that explain Vodafone slide since the beginning of 2018 remain evident in the latest set of quarterly results, with group revenues falling by 6.8% to €11bn. Disappointment is coming from the tough conditions continuing to be experienced in countries such as Italy, Spain (due to price competition) and South Africa.
As a result, one of its key performance measures, the organic service revenues growth dropped to just 0.1% with Europe falling by 1.1% while its other markets rose by 4.9%.
These results are evidence that new management, led by Nick Read, need to fasten the pace of restructuring the group. They have started this with some restructuring in their UK and Spanish operations and recently announced a network sharing deal with Telefonica O2 to help deploy 5G services. These moves should help its strategy of becoming a more digital business and meet expected surge in data demand from the “internet of things”.
Vodafone is a giant ship that will take time to turn around; however an impressive dividend yield in excess of 8% will keep many income seekers very interested. While we maintain our ‘buy’ recommendation, investors should be aware without signs of that turnaround in the near future, the generous dividend will increasingly come under pressure.
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