Share Centre stock of the week: Vodafone
Vodafone is our share of the week this week as the company continues to beat market expectations. In its first half results reported last week, the group said service revenues rose by 1.2%, which was well above the 0.8% expected by analysts. Investors should be aware that this is likely to be due to management reshuffling, improving European markets and investment in its network.
Despite service revenues rising, earnings had slipped by 1.7% to £5.79bn on a reported basis although investors should acknowledge that the group still managed to beat analysts’ forecast of £5.69bn. As a result of these solid figures, Vodafone raised its full year guidance from £11.5bn to between £11.7bn and £12bn.
While the price to earnings multiple can be considered a little high, we believe this is down to the fact that after the Verizon sale, it is in need of putting the proceeds to use and make acquisitions. We have already seen a fair bit of M&A activity in the sector over the last year as rivals consolidate and offer the “quad-play” of fixed line telephone, TV, broadband and mobile phone services. Interested investors should be aware that we suspect Vodafone could be seeking more deals to help it roll out its vision of supplying high speed broadband in more homes across Europe.
The good dividend yield makes Vodafone an attractive stock for income seekers who prefer a low to medium level of risk.