Two out of five ain't bad

Today was the day I chose to re-start coverage of Vodafone following the departure of the other member of Daiwa's telco mega-team. Boy, I know how to pick 'em. The market is almost closed, the share price is down 10.7%, on an almost inconceivable volume of 2.05bn shares. Luckily I wasn't planning on being overly positive anyway, but today was any doom-monger's dream come true. Spain and Italy looked decent, but the UK and German markets are obviously very tough going (as we knew), and Japan is a nightmare. That's two out of five core markets doing well. However, Japan could get a lot uglier, as could the UK and Germany (particularly if DT decides it wants to play the converged game in the UK too, and does something drastic) and I wouldn't count on Spain remaining the relative island of calm it has been.

The outlook statement gives a fairly unappetizing view of the next couple of years: margins to compress further in Japan, followed by more vigorous marketing initiatives in the other core markets in the 2006/07 financial year, bringing more of the same. (Does this sound familiar to anyone?) Capex is going up, and there's this small matter of GBP5bn in deferred tax liabilities which are to be crystallized sometime over the next three years. I think the market rightly senses that the additional GBP2bn in buybacks and increased dividend are a last gasp of the good times before the heavy weather sets in. I'm tempted to say that EuroTelco mutual annihilation is beginning to show some signs of coming to fruition.