Vodafone's patient strategy paying off, Citi says

Vodafone's operational gearing was set to improve, boosting the cover for the firm's dividend payments starting from fiscal year 2018, Citi argued.

In a research note sent to clients ahead of the telecoms operator's preliminary results, due out on 17 May, Citi analyst Simon Weeden said the company's patient strategy was paying off.

Revenue growth would continue improving while the company's zero-based budgeting would keep a cap on costs, while cost inflation from Project Spring would annualise out.

Weeden also highlighted remarks from Vodafone's finance chief at the broker's most recent conference regarding his expectation for service revenue growth to continue, although it would be outpaced by growth in earnings before interest, taxes, depreciation and amortisation.

Those preliminary figures would also focus markets' attention on growth in the company's EBITDA and its six-part “Fit for Growth” efficiency and customer car programme, the analyst said.

Free cash flow excluding spectrum costs should cover its dividens (5.0% yield), with cover improving considerably the following year.

Citi retained its 'buy' recommendation and 260p target price on the shares.