Vodafone's Project Spring fails to deliver bounce for Nomura and SocGen

Analysts were somewhat disappointed in full-year results from Vodafone, with Nomura bemoaning the lack of profits bounce generated Project Spring in its first year, while Societe General wondered if the giant £19bn investment programme should be renamed Project Summer.Thanks to a return to growth in the fourth quarter, revenues from the telecoms titan rose 10% at the reported level to £42.2bn, 0.8% ahead of consensus estimates, with earnings before interest, tax, depreciation and amortisation of £11.89bn down 6.9% on the previous year but beat forecasts by 0.4%.But this beat was only thanks, analysts from both banks pointed out, to £135m in one-offs due to some interconnect settlements in the second half, otherwise the figure would have been 0.7% short of expectations.Nomura, which reiterated its 'reduce' rating, added: "Organic EBITDA fell 7% in year one of Vodafone's Project Spring, and any expectations for an EBITDA bounce as Project Spring moves towards break-even have been dashed."The UK presented the biggest miss versus estimates, 4.4% below, and India was also weaker than we expected, with a 3.2% miss.The company's EBITDA guidance also implies a flat organic performance for the 2016 financial year after eliminating FX and acquisition impacts."Vodafone remains firmly in execution mode on Project Spring and has not hyped prospects for revenue growth in the full-year release," which the Japanese bank added was sensible in the context of increasing competition in the UK, India and the Netherlands."And the benefits of market repair in Germany are still yet to be substantiated. Without tangible financial benefits from Project Spring evident at the group level, we believe the market is likely to leave somewhat disappointed by the FY15 disclosure."The main surprises for SocGen, which retained its 'sell' rating, were that margins were still under pressure and that EBITDA had fallen so much despite stable revenues.On the upside, it highlighted a much better free cashflow (FCF) trend at £1.09bn, versus £386m consensus, although this was boosted by lower cash capex of £8.4bn versus £9.4bn consensus and lower interest.However, for 2016 management's FCF guidance is only for "positive", which compares to £940m consensus estimates.SocGen pointed out that Vodafone's shares VOD trades higher valuation multiples than its sector for earnings and FCF. While the dividend yield may look appealing it is deeply uncovered, costing circa £3.0bn while the company in FY14/15 generated cash of circa £1.0bn before spectrum payments."As the cash outflow for spectrum continues (with auctions in Germany looming) and capex staying higher for longer, cash coverage is likely to remain low."The French bank is expecting a whopping US capital gains tax charge from the Verizon Wireless deal of $23.0bn, but noted the IRS could validate a $5.0bn CGT, which would see it significantly raise it valuation for the company.