Investment Column: Right signals from Vodafone

THIS IS a bull market, and one of the sectors the market is most bullish about is telecoms. If you're in a business that involves people picking up phones it seems that valuations are no longer important.

Nothing could better demonstrate this than yesterday's reaction to Vodafone's full-year results. Here is a stock that has already almost trebled in value in the past 12 months. But faced with slightly better than expected pre-tax profits of pounds 650m - a 21 per cent rise - investors merrily pushed Vodafone shares up 25p to a new all-time high of 713p.

On profit forecasts for this year of pounds 830m, the shares now trade on a multiple of 42 times this year's expected earnings - more than double the rating of the market. Vodafone's growth prospects are good, but are they that attractive?

Based on the UK business, probably not. Vodafone is the largest and longest- established operator, but other competitors are muscling in. So Vodafone has to keep cutting charges and offering new services to hang on to its subscribers. The next generation of mobile licences, to be auctioned off next summer, will provide an opportunity to sell a range of new services. But until those are in place, last year's 8 per cent growth in profits is about all Vodafone can hope for.

The overseas businesses, however, are a different story. Vodafone has long insisted that its investments in mobile licences from Sweden to Uganda had huge promise. Now those ventures are beginning to pay off. Profits from continental Europe more than quadrupled to pounds 137.9m, although losses in the Pacific Rim deepened to pounds 59.2m.

Vodafone has other investments in its sights, and although its balance sheet gearing is approaching 300 per cent it has further borrowing facilities to draw on. Given the current state of the market, shareholders would also happily fork out more cash if Vodafone needs it.

Make no mistake, this stock is expensive. But the company's track record and prospects just about justify that rating. If you want exposure to the telecoms sector, Vodafone is a good long-term play.

Start your day with The Independent, sign up for daily news emails
News
The two faces revealed by the ultraviolet light
newsScholars left shaken after shining ultraviolet light on 500-year-old Welsh manuscript
News
Rosamund Pike played Bond girld Miranda Frost, who died in Die Another Day (PA)
news
Arts and Entertainment
books
News
newsHow do you get your party leader to embrace a message and then stick to it? With people like this
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat