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What’s that in Europe’s mobile sector? Can it be…growth?

May 19, 2015, 11:29 AM UTC
A SIM card of Vodafone is pictured in front of a letter of Vodafone in Dortmund
A SIM card of Vodafone is pictured in front of a letter of Vodafone Germany in Dortmund September 12, 2013. A hacker has gained access to one of Vodafone Germany's servers and has stolen the personal data of about 2 million customers, the company said on Thursday. REUTERS/Ina Fassbender (GERMANY - Tags: BUSINESS TELECOMS CRIME LAW LOGO) - RTX13IET
Photograph by Ina Fassbender — Reuters

Britain’s Vodafone Plc (VOD) posted a rise in quarterly sales for the first time in nearly three years on Tuesday in the clearest sign yet that Europe’s mobile market is edging towards recovery.

The world’s second-largest mobile operator has been hit hard by the constraints on consumer spending in its big European markets, fierce competition in India and by regulator-imposed price cuts around the world.

But on Tuesday it finally forecast 2016 core earnings growth on an organic basis following seven straight years of declines.

That follows updates from the likes of Telefonica SA (TEFOF) and Deutsche Telekom AG (DTEGY) which also showed signs of gradual, if slow, improvement in Europe.

Vodafone, which has 446 million mobile customers in countries ranging from Albania to Ireland, Qatar, India, South Africa and New Zealand, posted a rise in fourth-quarter organic service revenue, which strips out one-off costs such as handsets, of 0.1%. That’s not much but it ended 10 straight quarters of declines.

The result was helped by 6% growth from the Africa, Middle East and Asia-Pacific division, while the decline in European revenue and slowed to 2.4% from 2.7% in the previous quarter.

“We have seen increasing signs of stabilization in many of our European markets, supported by improvements in our commercial execution and very strong demand for data,” Chief Executive Vittorio Colao said.

Shares in the group slipped 2% percent in early trading, pulling back from a 9% rise in just over two months in anticipation of an upturn.

“For some time now, Vodafone has been trying to shake off the shackles of being regarded as a company which is “ex-growth” and today’s annual reflection points toward some future promise,” said Hargreaves Lansdown Stockbrokers.

Analysts believe that demand for the more expensive fixed-line fiber services and superfast 4G mobile connections will spur a return to growth from 2016.

“We have significant opportunities ahead of us, with only 13% of our European mobile customers using 4G,” it said.

The one weak spot in the results was Germany, where it was hit by stiff competition. Vodafone Germany CEO Jens Schulte-Bockum will stand down during the 2015-16 financial year.

One other longer-term concern for Vodafone investors has been the thought that it could seek to upgrade its networks in one go by buying Europe’s biggest cable operator, Liberty Global.

Analysts at Jefferies said they would like to hear the company predict strengthening revenue trends through the year.

“We view this as key to reassuring investors on Project Spring delivery and calming fears that Vodafone may need to reinforce itself with Liberty in due course,” they said.

Vodafone forecast a range for 2015-16 core earnings of 11.5 billion pounds ($18.0 billion) to 12 billion pounds, implying core organic earnings growth of between 1%-5%. It also said it wanted to raise its dividend every year.