Outlook: Vodafone justifies its glamour rating

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The Independent Online
IF THERE is one British company that can be deemed to deserve a glamour stockmarket rating, it must be Vodafone. The mobile phone operator trades at 58-times historic after-tax profit, a slight premium to none other than Microsoft. Vodafone's results, showing a 44 per cent rise in pre-tax profits to pounds 935.2m, go some way to justifying these dizzy heights, but are they sustainable?

The jump in profits marks a fifth consecutive year of 20 per cent or better earnings growth and crowns the rapid rise of Vodafone to count among Britain's top 10 companies by market value. This, remember, is a company that won a licence in 1983 and only went into business in 1985. Less than 15 years later, Vodafone leads the fast-growing UK mobile market with a 38 per cent share and has handsomely rewarded its shareholders.

Now the company is doubling in size with the pounds 38bn acquisition of the US and international mobile giant Airtouch. When the deal closes in early July, Chris Gent, the chief executive, will be left in charge of the market leader in what is probably the world's fastest growing industry. It will also create another British business champion to rival the global scale of older, more established companies such as Reuters, Glaxo Welcome and BP Amoco.

What Mr Gent and his team do for an encore isn't clear, but strong future growth seems assured. One reason for that is the relatively low penetration of mobile phones in the UK and in the US - only 25 per cent of people have a handset compared with double that level in Scandinavian countries.

As trans-Atlantic penetration grows, Vodafone Airtouch is better positioned than any other operator to benefit. Then there are the unique economies of scale that the pounds 80bn goliath will have as it expands beyond the 23 countries currently covered.

A further spur to growth is likely to come from integrating Internet applications, like banking and e-commerce, into the next generation of mobile services. Mr Gent is insistent that the next generation of services will provide returns consistent with what Vodafone has delivered in the past. Given the record, few will want to bet against him. Perhaps Vodafone really can justify its glamour rating.

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