Mixed fortunes for FTSE 100 income favourites

Markets were non-plussed by equity income favourites, Vodafone, Unilever and Royal Dutch Shell, on Thursday despite the latter two producing a decent set of final results.

Mixed fortunes for FTSE 100 income favourites


Of the three FTSE 100 big dividend earners, telecoms giant Vodafone, posted the most mixed set of results, with a drop in group revenue and decent momentum in its operations in developing markets.

Its group total revenue fell 3.6% to €11.8bn for the quarter ended 31 December 2017, thanks to a stronger euro and the deconsolidation of its operations in the Netherlands.

Factoring out currency movements and corporate activity, organic revenue actually grew 1.1% to €10.2bn, which it noted was a similar performance to the previous quarter.

And the firm said it still expects to meet its profit guidance for the full year.

Laith Khalaf, senior analyst at Hargreaves Lansdown, believes that while Vodafone is in a position to capitalise on the growing demand for mobile data, it has a chance to outperform in developing markets.

“The new mobile roaming regulations and a shift towards SIM only contracts have proved a drag on Vodafone’s performance in Europe,” said Khalaf. “Growth in developing countries looks promising though, where many of these markets have leaped-frogged fixed line phone networks and moved straight onto mobile as a primary means of communication.”

During the third quarter, the telecom firm’s revenue growth in Europe was just 0.3% compared with its operations in Africa, the Middle East and Asia (AMAP), which delivered growth of 6.8%. The AMAP market now makes up about a quarter of Vodafone’s sales, which is why Khalaf argues “these markets will add significant spice to Vodafone’s future”.


Meanwhile, Unilever reported a 9% hike in profits to €8.15bn during 2017, despite “challenging” market conditions.

Underlying sales growth across the business was 3.1%, with positive growth recorded across all of its four core categories. Turnover was also 1.9% higher at €53.7bn, though, this was hampered by an adverse currency impact of 2.1%.

While overall volumes in the primary markets in which the firm operates grew at less than 1%, the maker of Dove and Magnum ice cream was able to deliver 0.8% underlying volume growth across its brands, including spreads, over the full year.

Volume growth was up 1.6% in its home and personal care arm, but was down 0.2% in its food and refreshment businesses.

However, the firm noted that it has seen “some early signs of improving conditions in emerging markets”.

Overall, CEO Paul Polman reflected that the group “delivered a good all-round performance with competitive growth”.

“Our priorities for 2018 are to grow volumes ahead of our markets, maintain strong delivery from our savings programmes and to complete the integration of Foods & Refreshment as well as the exit from spreads,” said Polman.

“We expect this will translate into another year of underlying sales growth in the 3-5% range, and an improvement in underlying operating margin and cash flow, that keeps us on track for the 2020 targets.”


Shell also delivered a decent set of fourth quarter and full year results on Thursday, reporting a 184% spike in income for the full year to $12.98bn.

While a recovery in the oil price, increased production, improved refining performances and cost cutting efforts helped buoy earnings to $16.2bn (+117% year-on-year), lower operating earnings from its upstream and oil products divisions dragged the firm’s overall performance below expectations.

Helal Miah, The Share Centre investment research analyst, notes this is “particularly impressive as it was in spite of the $2bn hit from charges related to US tax reforms.”

Even so, Miah continues to recommend Shell as a “buy” for “investors looking for income and willing to accept a medium level of risk”.

He said: “The last few years have been transformational for the group as it offloaded non-performing assets and cut down on costs. As a result, we have seen the net debt fall and taking gearing levels to 24.8% from 28% a year ago. Free cash flows have improved too and the attractive dividends have been maintained.

“We kept the likes of Shell and BP on the ‘buy’ list even during the oil downturn as we believed they would maintain the attractive incomes after implementing deep restructuring programmes in the lower oil price environment. So far, they have come out of the other side in a healthier position and any further oil price rise will be a bonus by feeding down to the bottom line.”

Falling shares

All three firms were trading lower on Thursday morning, as the FTSE 100 edged up 0.04% from the previous close to 7,537.

Vodafone was the biggest loser of the FTSE 100 trio, with shares down 2.7% to 219p, while Shell shares were 1.5% lower at £24.60 per share.

Unilever experienced a more muted fall in share price, falling to -0.6% before shares rallied 0.25% above the previous close at £40.11 per share.

While other major stock indices around the world ended January on the up and up, the FTSE 100 and more domestically focused FTSE 250 missed out on the global rally, finishing the month down 1.5% and 1.9%, respectively.


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