Vodafone Group plc (LON:VOD) (LSE:VOD.L) has released H1 results. Vodafone’s organic service revenue increased by 2.3%, with group revenue down 3.9% to €27.1 billion. Q2 organic service revenue increased by 2.3%, which was led by an improvement in Europe to 1% and AMAP growth of 7.1%.
Vodafone’s H1 organic EBITDA grew by 4.3% to €7.9 billion. This was supported by strong cost control. Vodafone’s breakeven free cash flow reflected lower capital additions as well as seasonal working capital outflows. A non-cash impairment was recorded in India of €5 billion due to increased competition.
Full-year guidance has been narrowed. Vodafone’s EBITDA is now expected to be between €15.7-€16.1 billion, which represents 3-6% organic growth, while free cash flow is forecast to be at least €4 billion for the full-year.
Vodafone improved its performance during H1 and its performance in Europe was slightly ahead of expectations. It has made significant investment in its network and ‘more-for-more’ propositions which should allow Vodafone to take advantage of opportunities from increasing data demand as well as growth potential in emerging economies.
Take-up of its pay-tv and broadband services could also positively impact on Vodafone’s future performance. It is now Europe’s fastest-growing broadband operator, while its wholly converged Enterprise business continues to outperform its peers. Although competition in India has increased in the year to date, Vodafone is well-placed to grow its business in India through strengthening its data and voice commercial offers.
In 2016, Vodafone has outperformed sector peers Sky PLC (LON:SKY), BT Group plc (LON:BT.A) and Talktalk Telecom Group PLC (LON:TALK). Vodafone has fallen by 5%, but BT is down 23%, Sky has slumped by 29% and Talktalk has fallen by 11% in the current year.
In my view, Vodafone’s strategy is sound and it has long term investment appeal. Although competition in India and across Europe is increasing, Vodafone’s diversification into broadband and pay-tv could provide a boost to its financial performance. Its network investment and good execution in AMAP also offer long term growth potential, making it an appealing stock in my opinion. Therefore, I believe that it will continue to outperform sector peers BT, Sky and Talktalk in future.