Ian Forrest, investment research analyst at The Share Centre

“Vodafone’s interim results today showed improved demand in its European markets, although second quarter revenues still fell 1.5 per cent and net profit for the first six months dropped from £18bn to £5.4bn. Sales in Africa, the Middle East and Asia rose 5.7 per cent, the interim dividend was lifted 2 per cent and full-year profit guidance was raised slightly.

“These are encouraging comments from Vodafone and we continue to recommend the shares as a ‘hold’, especially for investors seeking a good income from a defensive business that generates large amounts of steady cash flow. That said, we would like to see further improvement in the company’s key European markets before we are tempted to get on board.”

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers

“While the challenges persist, Vodafone has posted a relatively comforting set of numbers, including an upward revision to its full year earnings.

“Strategically, the investment in the business through Project Spring is continuing apace and this, coupled with some selective acquisitions, is having the gradual effect of transforming the group into a unified communications company, as opposed to an almost pure mobile play. The increased use of data services, particularly in the upgrade from 3G to 4G, is supportive and there is still much headway for growth as those networks roll out in the key Indian market and Europe respectively. Strong revenues have enabled a further increase to the dividend, bolstering an already attractive 5 per cent yield, while the key metrics show an overall trend of stabilisation.

“Less positively, the ferocity of competition shows no sign of relenting and there are pockets in Europe such as Germany, Italy and Spain where service revenues continue to decline quite steeply. Furthermore, net debt has shown an increase given the recent acquisition activity, whilst regulatory overhang and an uncertain European economic outlook provide further causes for concern.

“Even so, the immediate outlook is more positive than it has been for some time, where the share price has fallen 13 per cent over the last year, as compared to a 2 per cent dip for the wider FTSE100. A recent improvement to the market consensus has been vindicated by these numbers, with the general view of the shares as a cautious buy likely to remain intact.”

Garry White, analyst, Charles Stanley

“Vodafone shares have fallen by more than 10 per cent in the year to date, but today’s update has provided some optimism for shareholders about future profits.
“Following the Verizon deal, the big issue for Vodafone was that it was even more exposed to European markets, where consumers are still suffering from the fallout of the financial crisis. However, management said today that there were signs that things were improving.

“There is growing evidence of stabilisation in a number of our European markets, supported by improvements in our commercial execution and very strong demand for data,” chief executive Vittorio Colao said. As a result, the telecoms group increased its guidance for full-year core earnings slightly.

“However, the group is yet to return to growth. Second-quarter organic service revenue, which does not include items such as handset sales and currency movements, fell 1.5 per cent. This measure is regarded as a key indicator of its performance. However, it is much better than the falls of 4 per cent to 5 per cent seen in previous quarters over the last few years.

“The group also has a two-year spending programme worth £19m. This includes it investing in new, faster 4G networks to meet demand for data services. This investment is likely to be partly responsible for the improvement in performance.

“The group also announced another interesting move today. It will launch residential broadband services in the UK in spring 2015, allowing Vodafone to compete with BT Group, which also offers bundled packages of broadband and telephones. Vodafone recently launched a combined fixed-broadband and TV service in the Netherlands, so further ahead a full “quadruple play” price could ultimately be launched in the UK.

“However, this is a very competitive market, as the current battle between BT Group and BSkyB indicates. There are also regulatory issues that could be a drag on earnings, as requirements to cut roaming charges in Europe demonstrated.
“The City is broadly positive on prospects for the company. Of the 28 analysts monitored by Bloomberg, two have a “strong buy” rating and ten say “buy”. A further 13 have a “hold” rating, with just three saying “sell”. The current prospective yield is around 5.5 per cent.

“Vodafone’s investments in its network appear to be paying off – with the group being about 40 per cent through the spending programme. The improvement in the top line in all regions is very promising and shareholders should be pleased with today’s statement – although there is still much to do.”