Vodafone ups outlook; reveals $5 billion Japanese sale

By Kate Holton and Georgina Prodhan

LONDON (BestGrowthStock) – Vodafone (VOD.L: ), the world’s largest mobile operator by revenue, raised its full-year outlook and announced the latest stage in its disposal program, a 3.1 billion pound sale of interests in Japanese carrier SoftBank.

The British carrier, which recently sold its stake in China Mobile (0941.HK: ) for $6.5 billion, said on Tuesday it was open to disposing of further assets it does not control, after some investors complained it was not delivering value.

Following a review of strategy, Vodafone said it would also focus on the promotion of tiered pricing packages for mobile data, which enables users to access the Internet, to drive better returns from smartphone users.

The progress on asset disposals, the refreshed strategy and the solid first half numbers were welcomed by analysts although the shares lost initial morning gains to be down 1 percent at 1500 GMT after a strong run ahead of the results.

Vodafone raised its full-year guidance, saying it now expects adjusted operating profit of 11.8 to 12.2 billion pounds ($19.67 billion), versus an earlier forecast of 11.2 to 12 billion pounds, after sales grew faster than expected.

In the medium term it expects to generate organic revenue growth in the range of 1 to 4 percent per year, driven by strong demand for mobile data, corporate sales and emerging markets.

Tiered pricing packages for data services would enable Vodafone to attract more data customers at the lower price end and persuade some customers to pay more for higher usage and, in some markets, higher speeds.

It expects to stabilize EBITDA margins and free cash flow generation of between 6 billion and 7 billion pounds per year.

First-half revenue rose 1.8 percent organically to 22.6 billion pounds, beating a Reuters I/B/E/S poll forecasting 22.3 billion pounds, as all regions performed well, including Verizon Wireless, its U.S. joint venture with Verizon (VZ.N: ).

First-half core earnings fell 2.8 percent on an organic basis to 7.4 billion pounds, compared with a forecast of 7.3 billion pounds, and EBITDA margins declined by 1.7 percent.

It reiterated its full-year free cash flow guidance of in excess of 6.5 billion pounds.

“We have also today announced an updated strategy … and looking ahead, this will create a more valuable business,” Chief Executive Vittorio Colao told reporters.

IMPROVING MOMENTUM

Vodafone shares had risen more than 16 percent since the company announced its intention to refresh its strategy in July, with much of those gains coming since it sold its 3.2 percent stake in China Mobile in September.

Vodafone’s 44 percent stake in SFR, its French joint venture with Vivendi (VIV.PA: ), and its near 25 percent stake in Poland’s Polkomtel are likely to go next, analysts and bankers believe.

The group however is expected to keep its most prized asset, the 45 percent stake in Verizon Wireless, because it can only sell to majority partner Verizon and would likely want to wait for a dividend which could start being paid from 2012.

Vodafone said it would seek to generate free cash flow or liquidity from non-controlled assets, such as SFR or Verizon Wireless, which analysts interpreted as a plan to either secure a higher dividend or sell.

Liberum Capital analyst Mark James estimated that Vivendi could pay 8.4 billion euros ($11.7 billion) for the Vodafone stake in SFR and said he expected a sale to happen.

Vivendi’s Thibaud Morin, Senior Vice President of M&A, said separately on Tuesday that Vodafone was not yet ready to sell its stake and declined to say whether Vivendi had hired a bank for the deal.

In Japan, Vodafone will receive the 3.1 billion pound ($5 billion) payment from SoftBank (9984.T: ) in two tranches: 212.5 billion yen ($2.62 billion) in December, which it will use to pay down debt, and 200 billion yen in April 2012.

The payment relates to Vodafone’s sale of its Japanese operations to SoftBank in 2006, as part of which Vodafone acquired loan notes and preferred stock and share acquisition rights issued by SoftBank subsidiaries.

“The strategic plan offers a solid basis for growth with few surprises,” Bernstein analyst Robin Bienenstock said. “The plan leads with profitable data, driven by better networks and tiered pricing.”

Vodafone also took an 800 million pounds impairment for its operations in Greece, which is undergoing austerity reforms after being severely hit by the recession.

(Editing by Hans Peters and Andrew Callus)

Vodafone ups outlook; reveals $5 billion Japanese sale