Vodafone masks 'tangible deterioration' under the surface - SocGen

At first glance, Vodafone's first-quarter results look fine, but analysts at Societe Generale said scratching the surface showed "a tangible deterioration in year-on-year growth trends with more to come".

The FTSE 100 telco's management, including outgoing chief executive Vittorio Colao, reiterated full year guidance as they reported emerging markets offsetting weakness in Italy and Spain, with some growth under newly adopted IFRS 15 accounting rules, which do not include the drag from UK handset financing

Service revenues of €9.85bn were 0.6% below consensus and SocGen noted that no details were given for EBITDA, free cash flow or net debt.

However, SocGen pointed out that group service revenue grew 0.3% excluding forex swings, a 120 basis point reduction from last quarter, when year-on-year growth came in at 1.5%.

"The main driver was a significant deterioration in Italy", the analysts said, where revenue fell 6.5% compared to the 0.7% growth the preceding quarter.

"Importantly, Spain and the UK also recorded a tangible deterioration in growth trends," they added, as Spanish growth swung from 1.0% to -2.2% and the UK from -3.4% to -4.9%.

Vodafone’s organic growth is supported by inflation in emerging markets, SocGen pointed out, with Turkey growing 14% to help mitigate the rising pressure in European revenues. "However, in euro terms Turkey recorded a 14.1% year-on-year fall in revenues, as a high level of inflation (which helps revenues denominated in local currency) leads to currency depreciation.

"This (partly) explains why VOD’s yoy statutory growth in service revenues came in a -4.2% vs the +0.3% recorded by VOD in organic service revenue."