Vodafone returns to two-bar growth

Rebounding service revenues and some turnarounds in Europe justify a medium-term benefit of the doubt

Organic rebound in context

Vodafone’s return to organic service revenue growth is the biggest relief in H1 results. The 0.7% year-on-year rise in the second quarter compares with 0.2% expected and more than erases Q1’s 0.2% decline. A sequential rebound leaves +0.3% on a half-year basis, pointing to a turnaround in Vodafone’s most important measure of revenues following two quarters of shrinking sales. Strengthening key sales on the back of improvements in some of Vodafone’s most troubled regions—South Africa, Spain and Italy—together with the best ever quarter for new UK customers have enabled a mild outlook upgrade.

Guidance signal

Adjusted Ebitda is now seen at €14.8bn-€15bn in the 2020 financial year compared with €13.8bn-€14.2bn before. Though the new forecast includes an €800m one-off boost from the purchase of some Liberty Global assets and the disposal of New Zealand operations, the midpoint of the new range is still €100m higher excluding those benefits. In effect, guidance is tightened with a slight shift to the higher end. It’s the most confident signal on guidance from Vodafone in the current financial year. CEO Nick Read duly confirmed that revenue growth is expected to continue through the remainder of the year in both Europe and Africa.

Tweak tempers relief

Investor relief has been evident in the stock’s rise of as much as 3.2%. As outlined in our preview, stabilisation of trouble spots like Spain, Italy and South Africa was necessary to safeguard underlying earnings goals, which were already lower than the year before. In turn, cash flow generation is critical for the dividend outlook after investors were forced to swallow a ‘rebase’ with an eye to lower debt and striking a better balance on spectrum costs and investments. Free cash flow guidance has been tweaked to “around” €5.4bn from “at least” €5.4bn. Although Vodafone shares pared their initial jump to a 2.3% gain by late morning, investors appear to have given Nick Read the benefit of the doubt on free cash flow goals. Greater clarity on earnings guidance helps.

Vodafone Idea still messy

The earnings guidance signal may even have encouraged the market to overlook persisting value destruction from Vodafone’s burdensome business in India. A €1.9bn loss was recorded for jointly owned Vodafone Idea with fierce competition exacerbated by a Supreme Court ruling. The UK group has struck some proceeds from the venture out from guidance whilst “financial relief” is sought from the government there. The update from India wasn’t as dire as feared by some investors, who suggested a write down of some €1bn was possible. Still, overall relief for the region remains some way off, providing ample room for critics who suspect Indian assets may eventually become worthless.

Germany, UK also stuck

Vodafone’s weak ‘coverage’ areas closer to home also remain evident, with a 1.4% H1 contraction in Europe, albeit that was still an improvement. Low margin wholesale businesses and stagnation in the mature markets of Germany and UK respectively look as intractable as ever. As such, some of Tuesday’s share fade is likely tied to medium-term prospects that may only have improved moderately, despite a relatively successful first half.

Stock price outlook

VOD shares have bounced from a 20% slump into the middle of the year to trade 7% higher so far in 2019. Latest results imply reduced impediments for the stock to recoup further into the year end. Still, the odds are better for steady rather than spectacular upside progress as VOD extends a mild outperformance of the UK sector. With shares now better underpinned, VOD’s total return of around 18.3 times now looks far more palatable relative to FTSE ALL-Share telecom peers’ trading on 18.4 x. Closing of the gap implies improved VOD stability ahead, so long as revenue, earnings and cash prospects remain on track.

Normalised: Vodafone Group Plc. / FTSE All-Share Telecommunications Index – year to date

Source: Bloomberg/City Index
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Apple buyers shrug off market retreat

iPhone sales keep falling but handsets remain key to a strengthening outlook

Reports that Beijing now doubts that a long-term trade deal can be reached with the U.S. anytime soon have brought the recent risk-seeking drive to a juddering halt. Yet Apple stock has remained aloft all session, returning to near-record levels hit last week. It was also the only gainer in the S&P 500 tech hardware sub-sector half way through Thursday’s U.S. session. In other words, investors are holding Apple, by and large, whilst retreating from most shares.

The $1.1 trillion-dollar group’s much awaited fourth-quarter report was certainly solid, in headline terms, crushing forecasts on the top and bottom line. Apple also paced expected revenues from services, the segment it sees as its chief growth driver. Yet Q4 details left quite a bit to be desired.

  • iPhones also showed a hefty shortfall on a year ago. Sales of $33.36bn were 10% below the same 2018 quarter
  • Critical Greater China region sales fell 2.4% on the year to $11.13bn
  • iPad revenues were ahead of estimates, but Macs missed badly, even accounting for a challenging comparison with Q4 2018

Yet Apple’s iPhone—still its top revenue earner—holds the key to renewed investor confidence. At a simple level, Q4 sales were comfortably above forecasts by about $1bn. Looking deeper, Wall Street is getting in gear with Apple’s dual strategy aimed at juicing a huge iPhone installed base and persuading owners to upgrade more quickly. Signs that this strategy is beginning to work include an overall sales rise and a raised top-line forecast for the key holiday period. The midpoint of new Apple guidance is $87.5bn. The Street’s Q1 view till last night $86.51bn.

Initiatives like an interest free monthly repayment programme over 24 months linked to Apple Card are set to be launched to reduce an upgrade cycle that has grown from about 20 months on average over the last three years to almost two and half years currently, according to UBS. Sales forecasts for new wearable technology products—chiefly, augmented reality glasses—are also compelling. So together with a stellar quarter in services, a more convincing overall top-line outlook is being bought. multiple investment bank upgrades were seen in the wake of Wednesday’s results.

The lack of a discernible base in the decline of iPhone sales should perhaps worry investors more. Continued declines will constrain profit growth. As well, the shares now discount a strong 2020 product cycle in a difficult to predict trade outlook, let alone an Apple-specific one. Apple upside risks have improved, but downside drags remain clear and present.

Staley wins again, then retreats

Jes Staley’s investment and trading business has remained a difficult-to-define work in progress for longer than shareholders have been comfortable with, but it’s getting a track record of beating the market.

Barclays Investment banking (IB) fees still caught flak in a volatile quarter for markets, geopolitics and the global economy. But the 1% fall on the year was shallower than the 11% plunge expected, looking at a consensus forecast compiled by Bloomberg.

The markets business, which Staley, a former trader, has become most synonymous with, also held its own against European and Wall Street rivals. Fixed income, commodities and currencies (FICC) particularly shone. A 3% income rise excluding Barclay’s share of Tradeweb IPO proceeds was better than many players on The Street. Equities tanked as hard as the competition though, down 17%.

That’s still further vindication of the CEO’s high-profile strategy to maintain exposure to volatile businesses that cost more than they make and which consequently, British and European peers have retreated from. The chief benefit of exposure for Barclays, which also has a sizeable UK deposit base, is shielded net interest income. NII slipped 3% in the UK to £2.9bn and rose 5.5% at group level.

Unsurprisingly though, as G10 rates trend lower, Barclays continues to describe the income environment as “challenging”, underlined by a 20 basis-point group net interest margin drop. As such, Barclays expects to make cost reductions in the second half and sees 2019’s total below £13.6bn, the low end of prior guidance.

Though underlying return on tangible equity was 9.4% in the six months to 30th June, it had tumbled from 11.6% in the year before. Pressures will almost certainly keep RoTE, a key profitability measure for banks, below the group’s >10% target for 2020. As such, the dividend rise announced on Thursday was just in-line. An announcement signalling a higher gradient of returns in the medium term seems unfeasible.

Chart thoughts

A declining line connects a high on 5th June, 23rd April and 23rd July. If extended it is pierced by subsequent highs in sessions that followed, though not permanently. This symbolises rejection of a ‘breakout’ above the bearish trend. As we can see, price subsequently followed through and continued to decline.

It’s not just the descending trend that is applying resistance to BARC.LN. Let’s plot a zone that is bound at its top by the 28th November 2018 high. It is significant due to the aggressive month-plus sell-off that followed. It was also tagged cleanly on 23rd May and on a number of other occasions. For the bottom side we can use a similarly important session high on 16th May. The pair creates a theoretical band of resistance.

So far, the zone has stymied attempted BARC.LN rallies on two occasions, 16th May being one. The latter is the cluster of attempted incursions between 22nd July and 29th July. After the last failure, the stock subsequently dropped and continued to fall throughout this week, including on 1st August, when Barclays released half-year earnings.

The shares closed on Friday almost exactly on the 61.8% Fibonacci interval of the 25th June-to-25th July up leg. The marker appears to be providing ‘classic’ support. Should the stock break below this level (and the Relative Strength Index) gives us a rough indication that it might, then the next probable downside objective ought to be a cycle low notched in July 2016.

If the Fib holds, further tests of the declining trend and then the band of resistance would be required before any upward trend change could be declared. Fundamentally, this stock has been unappealing for years. From the perspective of technical analysis, the probability of a strong recovery in the medium term looks low.

Barclays (UK) CFD – daily – source: City Index

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Testing, testing, please ignore

‘Lighting Magazine’ on Philips NV Splitting in Two

I share this as I’m quoted:

Philips splits business to create separate lighting company | News | Lighting.

Aside | Posted on by

Do make use of this! RT @johnpmcdermott

Do make use of this! RT @johnpmcdermott “The FT has made free all its #indyref articles. Hadrian’s paywall has been temporarily removed.”

Margin Call 0004

Ken Odeluga, July 11th 2014

  •  M2:
  • US Regulators, German banks inch toward Settlements
  • FCA losing Patience with Asset Managers
  • US ExIm closure could hit Boeing -FT
  • SSP Group IPO Priced at Lower End of Range
  • Middle East, Africa:
  • 53 Blindfolded Bodies Found south of Baghdad
  • 35,000 displaced by Yemen Conflict -Agency
  • Dutch Special Forces in Mali


M2 – Banking


US Regulators, Commerzbank, Deutsche inch toward Settlements


U.S. state and federal authorities have begun settlement talks with Commerzbank and Deutsche Bank over their dealings with countries blacklisted by the United States, Reuters reported on Tuesday, citing a source with direct knowledge of the regulatory investigations. The New York Times had first revealed the existence of talks between regulators and Commerzbank on Monday, citing people briefed about the matter.

The settlement talks have just begun and the timing of the deal is unclear at this time, the person told Reuters.

Deutsche Bank and Commerzbank declined to comment.



The New York Times said a deal with Commerzbank could be struck as soon as this summer.


Commerzbank, accused by U.S. authorities of transferring money through its U.S. operations on behalf of companies in Iran and Sudan, could pay at least $500 million in penalties, the New York Times reported.


The No.2 German lender would likely face a so-called deferred prosecution agreement that would suspend criminal charges in exchange for the financial penalty and other concessions, the report said.


A potential deal with Commerzbank, which is expected to pave the way for a separate settlement with Deutsche Bank, would pale in comparison to the deal with France’s BNP Paribas SA , the NYT said.

Sources: Reuters, New York Times


M2-Asset Management


FCA losing Patience with Asset Managers


An asset management firm has been told to repay customers after using their money to settle its market data bill, Britain’s Financial Conduct Authority (FCA) said on Thursday, in a crackdown on commission charges.


The watchdog’s chief executive acknowledged it is losing patience with firms that fail to comply with stricter rules imposed to help safeguard the UK’s position as a leading centre for asset.


British asset managers pay brokers about £3 billion a year in dealing commission, which is passed on to customers, but FCA investigations found that many firms have been using this as cover to get customers to pay for market data and research of questionable value.


Only trading fees and useful research can be passed on to customers as dealing commission, but the watchdog’s CEO Martin Wheatley said the review of 17 investment managers and 13 brokers found that only two investment managers were fully in line with the new rules.


Given poor compliance with the regulations, Wheatley said that the FCA is now backing a European Union law to separate research and trading fees to encourage greater competition and transparency.

Source: Reuters


M2Trade Finance


US ExIm closure could hit Boeing -FT


Dissolution of the US’s Export-Import Bank could have a “significant” long-term impact on Boeing, the commercial aircraft maker which receives more than a third of the bank’s credit, according to the Financial Times, which cites a report by Standard & Poor’s.

Boeing could be forced to finance more of its overseas sales directly, says FT, and Boeing could find itself in a more difficult financing position than Airbus, its European rival, when negotiating aircraft sales, the paper adds.


FT notes that ExIm, the US export credit agency, has been caught in the crossfire of the latest political shootout between Republicans affiliated with the Tea Party movement, who want to shut down or reform the bank, and the party’s business-friendly party moderates.

To stay in operation ExIm needs to be reauthorised by Congress by September 30.

Source: Financial Times


M2 – IPOs


SSP Group IPO Priced at Lower End of Range

Takeaway food and coffee company SSP Group has set the offer price for its listing on the London Stock Exchange at 210 pence a shares, at the low end of the previously mooted price range, the company said on Thursday.


SSP, which owns the Upper Crust and Caffe Ritazza brands, said it would raise £482 million giving the company a stock market value of £997 million. Conditional dealings in the shares began on Thursday.


The group’s advisors had narrowed the price range to between 210p and 230p, from between 200p and 240p set at the start of the flotation.

Source: Reuters


Middle East, Africa



53 Blindfolded Bodies Found south of Baghdad

Iraqi security forces found 53 corpses, blindfolded and handcuffed, in a town south of Baghdad early on Wednesday, local officials said.

They said the bodies had been left in the mainly Shi’ite Muslim village of Khamissiya, about 25 km (15 miles) southeast of the city of Hilla, near the main highway running from the capital to the southern provinces.

The head of the provincial council, local police and the governor’s office all confirmed the discovery of the bodies, but had no immediate information on the identity of the dead, who appeared to have been killed execution style.

The bodies were found at 2 a.m. (2300 GMT) on Wednesday, they said.

Source: Reuters


35,000 displaced by Yemen Conflict – Agency

More than 35,000 people have been displaced in Yemen’s Omran province, a local government refugee agency said on Wednesday, a day after Shi’ite Muslim tribal fighters overran the provincial capital following fighting that killed more than 200 people.


In an urgent appeal sent to relief organizations operating in Yemen, the head of the Yemeni government refugee agency in Omran reported “mass flight of Yemenis from Omran and surrounding areas after the city’s fall”.


“Based on the monitoring and follow-up that we have been doing, there are more than 35,000 people that have left for other areas in Omran or to the greater Sanaa area, Hajja and Mahaweet,” Mutahhar Yahya Abu Sheeha wrote in his appeal.

Source: Reuters


Dutch Special Forces in Mali

Dutch troops have joined a U.N. peacekeeping mission in Mali to meet a growing security threat from the region to the Netherlands, and Europe as a whole, the Dutch foreign minister said.


The Netherlands has deployed some 450 Special Forces troops, intelligence operatives and attack helicopters to a U.N. force rolling out across northern Mali, where al Qaeda-linked Islamists occupied swathes of the country before being driven back last year by French troops.


Although Dutch forces do not have an offensive mandate, the deployment marks a shift towards security issues in Africa for the Netherlands and their task – gathering intelligence – is new to U.N. peacekeeping missions that have traditionally avoided the art of spying.

Source: Reuters

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