Will Draper, analyst at Execution, said: “We expect revenue for Q3 of £11.3 billion, which will comfortably beat consensus, giving further evidence of stabilisation in developed Europe and early signs of recovery in some markets, notably in mobile voice usage, mobile data, and total traffic volumes. We rate as a BUY with a 180 p fair value.”
Execution has taken a look at its forecasts ahead of Vodafone’s Q3 IMS on 4 February. It has subsequently have nudged its revenue estimate up by around 1%, and consequently is expecting a decent set of results that comfortably beat current Bloomberg/IBES consensus revenues (£11.3 billion for Q3, £43.7 billion for the full year).
Draper added: “The Q3 IMS should build upon the message of stability at the Q2 stage by providing further evidence of stabilisation in developed Europe, with early signs of recovery in some markets notably in mobile voice usage, mobile data, and total traffic volumes. Based on this we are happy to reiterate our BUY rating and 180p fair value ahead of the Q3 results.
“We are expecting the company to update on its costs programme by affirming its £2 billion programme. There should also be an update on guidance, with which we see little risk, although we do not expect a further upgrade after the raise at the Interims. There will be no commentary on EBITDA, for which consensus is £14.7 billion and we are slightly below at £14.6 billion. Likewise there will not be discussion of dividends or any guidance given out for FY10/11.”
Here is a summary of the changes Execution has made and what it expects for Q3:
Europe, according to Draper: “In Germany we see a slight improvement in the ARPU trend, which we now expect to fall by 5.0% in Q3. Our service revenue forecast is €2148 million (-5.1%). In Italy we also see a slight improvement in ARPU, which we see falling 3.0% in the quarter, driving service revenues of €1541 million (-4.7%). Spain is the market where we see the greatest potential recovery in trends, with ARPU falling by 8% compared to the last six quarters of double digit decline. We see service revenues of €1516 million (-3.7%).
“For the UK we also see an improvement in ARPU trends to -4%, producing service revenues of £1171 million (-4.5%). In Greece, Netherlands, Portugal and the other European markets we see ARPU down 5-10%, and service revenues of €1429 million (-2.2%). For the Europe division overall we see service revenues up 0.7% in sterling terms, although on a local currency basis this is more like -4.0%.
“In South Africa we see a stabilisation of ARPU trends at -8.0% and service revenues of £1048 million, up more than 100% due to the stake increase. Romania has seen large ARPU declines, which we see getting better to -12%, although service revenues are still likely to be down in sterling at £251 million (-12.0%). Turkey is one of the few markets where local currency ARPU has increased, and we seen this continuing at +9%, helping to lift service revenue to £256 million (+1.3%). Overall we see revenues in this division up 47.1% in sterling.”
He added that Indian ARPU has been falling rapidly due to price pressure, and Execution expects to see this continuing at -20%, however strong subscriber growth should produce service revenues up 19.2% in sterling terms at £803 million. Egypt has likewise been suffering intense ARPU pressure which Execution thinks will continue at -18%, causing service revenues to be more or less flat in sterling terms at £350 million. Overall Execution sees this division up 10.8% on a sterling basis.