Vodafone reported fiscal third-quarter sales that continue to be hurt from adverse currency movements. Reported revenue fell 3.9 per cent year over year, but would have been slightly positive without the currency weakness. Organic service revenue increased 1.7 per cent. We expect to maintain our Fair Value Estimate and narrow Moat rating, and we believe shares are undervalued. While India struggled due to Reliance Jio’s aggressive entry strategy of giving away voice and data services for an initial period, which keeps getting extended, much of the rest of the business is performing well. We are particularly pleased with the broadband business, where the subscriber base grew 10.5 per cent to 14.3 million. Additionally, Vodafone’s fixed-line network now passes 90 million households in Europe, which allows for the marketing of converged fixed-line and wireless services. We believe convergence is a major theme in European telecom, so it’s important that Vodafone can offer such a product.
Despite Jio’s aggressive entrance, we believe Vodafone can be successful in India and are encouraged that it is looking at mergers as a way of increasing its scale. We think a tie-up with Idea Cellular can only enhance its position in India. Vodafone continues to perform well in its other large emerging-market countries of South Africa, Turkey, and Egypt, but was hurt by depreciating currencies in these countries. In Europe, it increased organic service revenue in most countries, excluding the United Kingdom. While the firm is having some issues in the UK, we were pleased that its enterprise business is steady, unlike that of BT Group, which reported weakness last week. We still believe that the market is too focused on short-term problems in India and the UK and on currency weakness, and that it is missing the stabilising results in Europe and good organic growth in emerging markets outside India.