BLUECHIP : Vodafone is upwardly mobile

It is an irony that while Racal Electronics issued its third profits warning in six months last week, as it released disastrous full-year figures, Vodafone (290.5p), the mobile phone operator it spun off nine years ago, should be announcing record profits of pounds 539m.

Racal shares, of course, have been something of a dead loss. Until chairman Sir Ernest Harrison has reached some sort of decisive agreement on the future, Racal is best avoided.

Vodafone, however, remains something of a tease. The shares have easily outperformed the FTSE-100 index. However, the mobile phone business is becoming increasingly cut-throat. Is the best past, or do the shares offer investors further riches?

Given that holders since flotation have seen the value of their investment quadruple, it is tempting to take profits. But Vodafone's management has an excellent track record, fending off the opposition with some ease.

Take the recent results. The big problem facing the group over the last year has been transferring customers from its old analogue service to the new digital standard. To tempt customers to make the switch, it was willing to pay out pounds 52m to subsidise supplying new digital handsets. But the move seems to have paid off. Vodafone's churn rate - the proportion of customers changing to another supplier - was 27 per cent; higher than average, but good in the circumstances. Digital churn was only 15 per cent.

There was good news elsewhere. For the first time, overseas operations moved into the black, contributing pounds 10.5m to pre-tax profits of pounds 539m. The twist here is the expected rate of growth. The City sees overseas profits leaping to pounds 100m this year, and pounds 200m next year.

On that basis, the shares trade at around 20 times current year earnings. That remains a premium to the market, and rightly so. But it is a remarkably cheap premium if, as looks likely, such growth can be achieved.

Overall, the group has 4 million customers worldwide, double the number a year ago. Chief executive Chris Gent said Vodafone would not seek any new opportunities overseas, but would concentrate on growing existing businesses. A cloud came in the shape of a slightly disappointing performance by E-Plus Mobilfunk in Germany. But overall Vodafone is doing well - the shares remain a buy.