The Investment Column: Vodafone looks to emerging markets for growth

ITM Power; Carluccio's
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The Independent Online

Our view: Buy

Share price: 175.3p (-1.6p)

Vodafone monitors the heartbeat of the world's major economies according to voice, data, messaging and broadband sales. The latest health check shows that everything appears in good shape. Arguably, anxieties brought on by the credit crunch have accelerated rather than curtailed use of mobile communications.

Vodafone, the world's largest mobile phone operator by sales, delivered a 16 per cent rise in revenue for the third quarter to last December of £9.2bn, ahead of expectations. Organic growth showed a 4.4 per cent improvement. It increased its mobile customer base by 10.8 million customers to 252 million. In November the company forecast full-year revenues of £34.5-£35.1bn with operating profits of £9.5bn-£9.9bn.

Vodafone did not revise the figures yesterday although they will come in higher if the euro continues to strengthen against sterling. About 60 per cent of total revenues and profits are in euros. If it continues to appreciate it could swell the outcome for the year by hundreds of millions of pounds. But Vodafone is not relying on currency movements to deliver market-pleasing results. There have been some notable performances across the group.

The European region picked up 3.1 million new customers during the quarter taking the total to more than 109 million.

Growth in emerging markets exceeded 13 per cent. The most recent acquisitions in India and Turkey turned in growth of 56 per cent and 26 per cent respectively. The US arm, Verizon Wireless, did not reflect turmoil in the economy with 54 per cent growth in messaging and data revenue.

While Vodafone has continued to grow its services it has also acted to keep a tight grip on costs. The shares have risen 30 per cent since bottoming out at 134p last year. They have further to go.

ITM Power

Our view: Speculative buy

Share price: 98p (+3p)

ITM Power floated in 2004 with the tantalising promise of developing hydrogen fuel cells. The growing demand for efficient forms of renewable energy has placed great pressure on ITM to succeed.

But so far no one is helping pay for the development work. That has been left to shareholders. ITM presents a convincing case for its technology but it still has someway to go.

The company's electrolyser technology is aimed at producing hydrogen from a combination of water and low-cost electricity.

ITM has adapted a Ford Focus to operate using pure hydrogen while BMW has developed its own hydrogen-powered cars but admits they are still 20-25 years from being on the road in significant numbers.

Latest half-year results show a widening of losses from £1.42m to £1.9m. A manufacturing glitch has now delayed further work on the bi-fuel car. The electrolyser which is the heart of the device has developed flaws under pressure.

ITM is burning cash at around £4m a year but with £29m in the bank is under no immediate pressure. But it badly needs firm evidence that its technology is suited to volume manufacturing.

Listed at 50p, the shares have been volatile, reflecting progress, or lack of it, at various times. At this stage they remain one for investors happy to take a punt on a renewable energy company finding a commercially successful product.


Our view: Hold

Share price: 130.5p (-6.5p)

Shares in restaurant operators are like front-line troops when times get tough. They are the first to feel the flak. So the sector has suffered badly from profit warnings as people spend less on eating out.

The big issue for Carluccio's is whether it is sufficiently different from other eateries to weather the storm. The signs look reasonably encouraging. The company, which runs authentic Italian style restaurants with integrated food shops, said conditions are more challenging than a year ago but still pushed up sales by 18 per cent in the 16 weeks to January 13.

That is robust in present conditions. Carluccio's does offer a different experience. Punters spend an average £12 a head so a visit will not break the bank.

While some rivals have mothballed opening programmes it plans to open five more outlets this year – two in prime sites such as Heathrow's Terminal 5 and St Pancras International terminal – on top of the 34 already trading. Two sites, in Leicester and Bristol, have also been lined up for 2009.

Despite over optimistic forecasts about the resilience of the eating out market it is vulnerable when discretionary spending is under pressure. Carluccio's weakened yesterday where it sells on 17 times forecast earnings for 2008. A fairly safe hold.