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Mobile phone operator Vodafone received a reasonable reception to its latest results – share prices were up 1.6% despite a 1.9 bn EUR half year loss. Vodafone took a $4 billion hit on its Indian joint venture after the country’s Supreme Court ruled against it in an ongoing battle about backdated levies. Investors look to have focused on the mobile operator’s upgrade to its earnings forecast rather than the Indian loss, though, and its share price stood at 159.58p at the time of writing. Vodafone, which is the world’s second largest mobile operator, increased its forecast for adjusted core earnings to 14.8 to 15 billion EUR, up from 13.8 to 14.2 billion.
A German cable acquisition, and signs of growth in Italy and Spain have all contributed to what Chief Executive Nick Read described as a return to top line growth. So, is Vodafone a good bet for potential investors? This is Vodafone’s return to growth after two negative quarters, despite the costly effects of the Indian joint venture. Some analysts have raised concerns about Vodafone’s ‘eye watering’ capital expenditure and its growing debt, standing at 48.1 bn in the last quarter. Read has tried to cut costs though since he took the helm last year, slashing the dividend by 40% and making the decision to sell some of the group’s 18 million EUR mobile masts by May 2020. Most analysts are optimistic, in the wake of these results – Deutsche Bank has raised its price target to 240p, which if achieved would represent the highest point since 2015 and many others have issued a ‘buy’ rating. Whether or not Vodafone can live up to these expectations probably depends on its cost-cutting drive and the success of its Liberty Global acquisition.
Investors in another telecoms giant, BT, are hanging up despite the firm also looking likely to meet its expectations this year. Shares in the company have been on a downward trajectory for some time, almost halving in value over the last five years and now standing at 195.80p at the time of writing. To add to this, the company’s share price has taken another downward lurch following Labour’s new election pledge to ‘nationalize broadband’. So, is the future bleak for BT or can it reconnect with its investors? Full-fibre broadband is having a big impact on BT’s revenues – while the current Government is keen to upgrade the country to ultrafast broadband, there is still confusion about who foots the bill. BT has planned to connect four million premises to full fibre broadband by 2021, and it has more tentative ambitions to raise the target to 15 million homes by 2025 at an estimated cost of between £400 and £600 million a year. The telecoms giant is unlikely to see any return on this broadband investment for years, if not decades though, and the forthcoming General Election makes the situation even more complicated. BT is executing a cost cutting strategy, slashing 13,000 jobs and closing 270 of its 300 offices, but will that be enough to fund its long-term ambitions? Opinions are divided on this one – some are concerned by the mounting costs of the broadband project, but others remain optimistic, seeing BT’s current price as a good entry point for investors that are prepared to hang on for the potential of long term yields.
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