US Edition Vodafone
176p +3.15
Questor says BUY
The world's largest mobile operator now expects that 2011-adjusted operating profit will be between £11.4bn and £11.8bn, the upper half of the range indicated in May.
The group continues to expect free cash flow to come in between £6bn and £6.5bn excluding the £2.8bn dividend due from US operator Verizon Wireless in January 2012. Free cash flow is important because it is the amount of cash the group has after maintaining and investing in its business. Without this cash it is difficult to pay dividends, cut debt and make acquisitions.
The results were boosted by a strong performance in emerging markets - which is a key part of the group's expansion strategy. In these fast-growing economies there is upside for the provision of data services, an area in which Vodafone has relatively little penetration.
In the six months to September 30, revenues rose by 4pc to £23.52bn but pre-tax profits fell, to £8.01bn from £8.24bn.
However, this figure was hit by a number of one-offs, including a large positive financing benefit last year. Operating profits actually rose to £9bn from £5.2bn.
The interim dividend was upped by 7pc to 3.05p – with a special 4p dividend also being paid at the same time from the first payment from Vodafone's stake in Verizon Wireless. The special dividend amounts to £2bn. The payments will be made on February 3, 2012, and the shares trade without this payment from November 16.
In an attempt to "create a more valuable Vodafone", the mobile operator is focusing its efforts on Europe, India and Africa. It has also been disposing of non-core stakes. For example, during the first half of the financial year, Vodafone completed the sale of its 44pc interest in French group SFR to Vivendi for £6.8bn. It has committed £4bn of the proceeds to a share buy-back programme. It also announced the sale of its 24.4pc stake in Polkomtel, the Polish operator, for £800m.
The main reason to buy Vodafone shares is the dividend. The group plans to increase its payment by at least 7pc a year until March 2013 – and the prospective yield is currently a very attractive 7.2pc, rising to 7.3pc.
The highest the shares have been recommended previously is 173.4p on November 11 last year. They are now 1pc above this compared with a market down 4pc. The shares remain a buy for income seekers.