Analysts at UBS said there are “enough positives” for the FTSE 100 telecoms group’s shares to reverse their recent underperformance versus the sector
Results from Vodafone PLC () got a positive report card from City analysts for its annual results, with maintenance of the dividend a highlight after 43 of the FTSE 100 have so far cut, suspended, deferred or cancelled their payouts amid the coronavirus outbreak.
The telecoms group’s full-year numbers were “reassuring on a number of fronts”, analysts at UBS said, with many more positives than negatives.
One of the key upbeat notes was that organic service revenues of 1.6% in the fourth quarter were notably ahead of the consensus forecast of 0.9%, with the improvement driven by notably lower declines in Spain and Italy.
With a massive €42.2bn debt mountain to chip away at, other highlights picked out by the Swiss bank’s number crunchers were that the planned ‘monetisation’ of the European Towers arm via an IPO early next year “should lead to a step-down in leverage”; while there was also heart taken from the new announcement of a €1bn of run-rate savings to be made in the coming three years, up from €400mln that had previously been factored in.
Dividend in focus
While the outlook remains somewhat clouded by coronavirus, UBS hailed the maintenance of the 9 eurocents dividend, “well covered” by free cash flow and said, “we think there are enough positives for VOD to reverse its recent underperformance vs the sector.”
Richard Hunter, head of markets at Interactive Investor, said that the “prodigious cash generator” maintaining its dividend “will be a pleasant relief to increasingly starved income-seekers”.
“The projected yield of over 7%, even if partly driven by a weaker share price, is nonetheless particularly attractive given not only the current interest rate environment but also the relative lack of income options elsewhere,” he said.
Comparing to FTSE telecoms peer BT, which cut its dividend last week to preserve cash for investment, was odious, felt William Ryder at Hargreaves Lansdown, as the structures of the two groups differ so much, “but Vodafone shareholders will still be glad their management team feels secure enough to keep paying through the pandemic and transition to 5G”.
Indeed, it is “a far cry from last May”, said Russ Mould, investment director at AJ Bell, recalling when Vodafone’s new chief executive Nick Read sanctioned the first dividend cut in the company’s history.
“Vodafone’s ability to hold the (reduced) dividend rests upon its cash flow, where there was a marked improvement in performance in the year to March 2020,” Mould said, noting that free cash flow jumped strongly as the company optimised its portfolio of assets, cut costs and benefited from ever-growing data and video…