At long last, Vodafone revenue is growing again. The company is also likely to return to organic Ebitda growth this year. Its £19-billion ($30 billion) splurge on network infrastructure seems to be paying off. The snag is that its biggest market, Germany, is still a work in progress.
Many of the trends are encouraging. Vodafone, like lots of other competitors, is moving towards selling "converged" offers of landline, broadband, mobile and TV packages. Fixed-line sales now make up a quarter of European service revenue.
Organic service revenue, a like-for-like measure that excludes things such as handset sales, grew 0.1 per cent in the fourth quarter of Vodafone's financial year. It had fallen for 10 straight quarters. European markets are showing signs of stabilising after a frenzy of consolidation. Mobile-user tariffs are increasing in some markets and in Spain and Italy, where they are still falling, the rate of decline is slowing.
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Questions, however, hang over Vodafone's German business. It is Vodafone's largest unit by sales, and service revenue fell 3.1 per cent in the quarter - worse than expected. Stiff competition hit its expensive mobile prices harder than rivals'. Vodafone admits performance was below par, but the changes in the divisional leadership in Germany suggest Vodafone may be getting to grips with the issues.
Vodafone trades on an enterprise value of 7.1 times 2016 Ebitda, on JPMorgan's estimates, cheaper than Deutsche Telekom's 7.7 times. Its generous 4.9 per cent forward dividend yield is above the sector median, on Thomson Reuters Eikon figures, of 3.5 per cent. A speedier turnaround in Germany would help Vodafone erase the stock price discount.
