Analysts reassured by Vodafone's interim results

Vodafone's share price surged on Tuesday on the back of its interim results, with analysts at UBS hailing top-line trends that were "notably stronger than expected" and JPMorgan praising the "impressive" improvement in service revenue trends.

Brewin Dolphin was less impressed and said that it didn't expect such a positive reaction to a "broadly in-line" report from the telecoms giant.

Strong consumer demand for data helped revenues rise 8.9% in the six months to 30 September to £20.8bn, more or less matching analysts' forecasts.

However, the 1.5% decline in organic service revenue growth in the second quarter came in much better than the 2.6% fall expected and was much improved on the 4.2% in the first quarter due to the lower impact from mobile termination rate cuts and better commercial performance.

With earnings before interest, tax, depreciation and amortisation (EBITDA) down 10.0% to £5.88bn, a 1.2% beat of consensus forecasts, analyst Polo Tang at UBS thinks "this marks the low point for EBITDA after a step up in commercial investment/Project Spring spend and momentum should improve from here".

JPMorgan's European telecoms team were similarly bullish. "Today’s results demonstrate an impressive, broad based, inflection in service revenue trends. With this underpinned by accelerating mobile data usage, a solid customer intake, stabilising ARPU trends, and falling churn, we are increasingly confident Vodafone could return to growth by mid-2015."

Analyst Akhil Dattani has model for service revenues to fall 0.8% and 0.4% in the third and fourth quarters, before a 0.5% rise in the first quarter of the next financial year. "We believe the much hoped for return to growth will support a material multiple re-rating, a view strongly evidenced in Belgacom's year-to-date performance," he added.

Brewin's Nik Stanojevic felt the results were broadly as had been expected and in line with guidance, as management "has always said that organic revenue growth in Europe would be negative in the first half and better in the second half as it lapped price declines".

He said that Tuesday's market reaction - shares up 6.9% by early afternoon at 222.2p - "is a surprise to us and indicates that investors were more sceptical going into the results (it also confirms the importance of the organic revenue number for investors)".

Alex Joyner at Galvan Research was somewhat more bearish. "Life after Verizon hasn’t got any easier. Europe’s still a mess," he snarled.

"There are some decent growth opportunities for Project Spring in areas like 4G but Vodafone’s still got a lot of work to do. What’s there to get excited about? It’s a low growth company that’s sold off its best asset."