Vodafone
Service revenue £18.4bn, up 1%
Cynics might think that there was a fair amount of stage management behind Vodafone’s half-year results. No one should worry that talks with John Malone’s Liberty Global over a mega-merger fell apart in September because look, a partial flotation of Vodafone’s Indian business is in the offing.
A spin-off of the Indian side would, indeed, be significant for the mobile phone group. Vodafone could raise more than $3 billion if it floated a quarter of the business in what could be India’s largest initial public offering.
The manoeuvre would not be straightforward. Competition is emerging fast and Vodafone is wrangling with India’s tax authorities over a $2 billion dispute related its purchase of Hutchison Whampoa’s Indian assets in 2007.
However, the funds would add firepower to Vodafone when its leading competitors are merging: BT is buying EE, the wireless carrier, to create the biggest converged operator, while O2, owned by Telefónica, and CK Hutchison’s Three are aiming to become the biggest mobile operator next year.
Shares in Vodafone jumped almost 4 per cent to 222¾p after the company demonstrated that it had been able to turn money invested in the business into solid improvements in service revenue — with seven of its thirteen European markets back in growth — and a fall in disappointed customers leaving for competitors. The company, one of the most widely held stocks in the FTSE 100 with about 500,000 private investors, reasonably can claim that both indicators show that it has reached a turning point, or at least a milestone, thanks to investment it made in its networks and technology.
Vodafone has raised its growth estimates, saying that full-year earnings before interest, taxes, depreciation and amortisation are expected to be between £11.7 billion and £12 billion, up from a bottom-of-the-range £11.5 billion.
The results were boosted by a rebound in Europe in the six months to September 30 after being hit by price wars and high unemployment, as well as a surge in demand for mobile data in Africa and India.
There is the prospect that big investors who had held Vodafone for income may fancy it for growth, which could prompt a rerating.
My advice Buy long term
Why There are many parts to the rapidly changing markets in which Vodafone operates, but even if its shares do not enjoy a short-term boost, they are worth a play, with patience
ITV
Revenue £2bn Net debt £525m
Another update from ITV and another set of good results — what’s not to like? The broadcaster and production company has confounded City expectations repeatedly this year. Add speculation about a potential takeover bid and it is not hard to understand why the shares have gained about 60p in the past ten months.
Yesterday’s 13 per cent rise in revenues to more than £2 billion was propelled by the 28 per cent jump in income from ITV Studios, behind hit shows from Poldark to Come Dine With Me, as well as a 7 per cent rise in its broadcasting and online business.
Advertising appears solid, with ITV guiding towards a 5 per cent rise for the full year, a little less than analysts’ forecasts but a welcome boost, nonetheless. The company’s audience share also looks to be improving, with a half-year 4 per cent fall narrowing to 3 per cent for the ten months to the end of October, helped by the impact of the Rugby World Cup and the group’s reliable base of soap operas.
At more than 260p per share, ITV looks fully priced and with Liberty Global still to pounce with its 10 per cent stake, there seems no reason to buy with no other obvious catalysts for appreciation on the table.
My advice Avoid for now
Why The shares look fully priced
Prudential
Interim dividend £300m
Five years on from its aborted takeover of AIA, the Hong Kong-headquartered insurance group, Prudential is looking every bit the Asia-focused insurer that Tidjane Thiam, its chief executive at the time, had wanted the business to become.
In the nine months to the end of September, more than half of the group’s profits came from its Asian business, which grew more quickly than any other region, with sales for the year rising a little over 30 per cent to top £2 billion.
As Asia’s middle class grows — a not unreasonable expectation, given the wealth being created — demand for the insurance and savings products sold by Prudential is likely to rise. In Hong Kong, business volumes rose by 73 per cent, while in China and South Korea increases of close to 40 per cent have been recorded so far this year.
Britain and America also look solid, although eyebrows have been raised in the City at the scale of the company’s variable annuities business on the other side of the Atlantic, a market that many US insurers exited some time ago.
With a sum-of-the-parts valuation of £18 per share by some analyst estimates, even these concerns and a sudden end to the rocket-fuelled growth in Asia mean that the stock still looks undervalued at its present trading range of about £15.
At two and a half times’ covered, Prudential’s dividend remains secure in a world where sustainable returns look scarce in the financial services sector. Even taking into account new industry regulation, the company looks robust, making this a good long-term buy.
My advice Buy
Why Shares still look cheap and finances remain strong
And finally . . .
Could things be looking up for Speedy Hire? A summer profit warning sent the tool and plant hire company’s share price to a three-year low, yet just over three months into a turnaround, Russell Down, the chief executive since July, appears to be having some success. Half-year figures yesterday suggested that it may be time for investors to give Speedy a second chance as costs came down by £13 million. At just over 30p a share, the stock is less than half the price it was a year ago, leaving considerable upside.
Follow me on Twitter for updates @MartinWaller10
