Bottom Line: Hold on for a dividend – and maybe more

Elizabeth Fournier

WITH a bumper £16.6bn dividend coming their way next year, Vodafone investors are unlikely to be going anywhere fast – even after a disappointing set of results that saw organic service revenues drop by 4.9 per cent in the second quarter.

The payout gives CEO Vittorio Colao a bit of legroom to dispense of some of the rest of his Verizon Wireless windfall – and he’s chosen to spend it on beefing up the firm’s infrastructure to improve network quality across some of its core markets. The trouble is, some of those markets aren’t doing very well. In Europe, where Vodafone is spending £3bn of its planned £7bn investment, revenues fell by 3.9 per cent in northern and central countries, and by a massive 14.9 per cent in the south. It’s all very well offering customers a better service, but if conditions on the continent are as tough as Colao says then getting them to pay for that service will be hard. Vodafone still makes 70 per cent of its revenues in Europe but the region is dragging down better performances in its emerging markets division, where India alone grew by 13.5 per cent. If it wants to stay relevant, the firm would be better off investing in these high-growth geographies.

In the meantime, suitors are looming. Having offloaded its stake in Verizon Wireless the new, smaller Vodafone is an increasingly obvious target and Project Spring – along with the firm’s revelation that it is holding £17.7bn in tax credits against losses in Luxembourg and Germany – will do nothing to dissuade interest.

Shares barely moved yesterday. With AT&T rumoured to be putting together a bid in the next few months, they’re unlikely to stay that way for long.