Broker snap: Positive earnings momentum for Vodafone

Positive earnings momentum for Vodafone has seen Nomura upgrade its earnings per share forecasts for the telecoms titan by 5-6%. "Strong cost reductions should drive organic earnings before interest, taxes, depreciation and amortization inflexion in the second half (+2% year-on-year) and in the 2012 financial year (+2.8%) though the step-up in customer investment still distorts first half margin", says analyst James Britton. The broker predicts a 2010 operating profit 2% ahead of consensus at £12bn for the mobile telecommunications service provider, with £12.5bn forecast for 2011 and 2012, 5% of market expectations."Vodafone's tax efficiencies deliver cash tax saving of circa £1bn per annum. Treasury has lowered its financing rate below 4% (sector average 6%)," Britton notes. The broker says it is time to appreciate the benefits of Vodafone's size with these "large company' benefits" supporting premium cash conversion and a premium rating.The group's joint venture with Verizon Wireless has seen good momentum, allowing guidance to be raised. Britton said that an improved outlook for dividend payments from the joint venture "will lead to a step-change in Vodafone's cash flow".The broker has reiterated its 'buy' recommendation and price target of 200p.