Vodafone weathers European storm

Vodafone weathers European storm

Booming demand for mobile internet access in the UK and strong growth in emerging markets will help Vodafone weather the financial storm in southern Europe on Tuesday.

The mobile phone giant’s shares approached their pre-financial crisis peaks in early 2012 but have weakened in recent months amid fears that its stellar growth is beginning to slow.

The Newbury-based firm’s performance has been hit by recessions in Spain and Italy while the fees it can charge for connecting mobile calls are being reduced in markets such as the UK. These effects are offsetting gains from its rapid growth in India and Turkey, and from growing demand for data as people use smartphones to get online.

Its last update disappointed investors after its European business suffered a 1.7% underlying revenue decline in the final quarter of 2011, helping slow the group’s growth for the third quarter in a row.

But Will Draper, an analyst at Espirito Santo, thinks Vodafone will regain momentum in the three months to the end of March as it increases market share in mobile data. He also thinks the decline in its southern European markets will bottom out.

The UK will grow by just 1%, slightly down on the 1.1% it reported in the previous quarter, despite it benefiting from slightly softer cuts to its termination rates. The City expects Vodafone’s underlying profits to fall £11.4 billion, slightly down on last year’s £11.8 billion. However, last year’s figure was boosted by contributions from its stakes in French business SFR and in Polkomtel in Poland, which have now been sold.

Meanwhile, the miserable spring weather is set to further slow the UK growth of online fashion retailer ASOS by dampening demand for summer fashion.

The group, which targets 16 to 34-year-olds with its own brand of clothes based on outfits first worn by celebrities, was previously a stock market darling but it has seen its shares slide by a third over the past year amid signs of a loss of momentum. It disappointed markets when it said UK sales increased 4% in the first three months of 2012, compared to 10% in the previous quarter, while the rate in the US more than halved to 69%.

Jean Roche, an analyst at Panmure Gordon, said industry figures showed online fashion saw its slowest-ever April growth amid the record rainfall. This is likely to have hit sales at ASOS, although she added that any falls in the company’s share price should be seen as a chance to buy into “a long-term global growth opportunity”.

The group will shrug off fears about its growth on Thursday when it reports a 40% rise in profits to £40.3 million in the year to the end of March â€" in-line with City expectations â€" helped by margin improvements.

ForexNews.com