Mobile growth improved very marginally to -3.6% this quarter as roaming revenues were harder hit and competitive intensity bounced back, but usage recovered from the lockdowns in Q2 and cuts to intra-EU calls were annualised.

Italy’s fortunes took a turn for the worse as roaming hit particularly hard and Iliad resurged. After a spate of downgrades to the outlook last quarter, there were some tentative upgrades in Q3 although the tone remains cautious.

The diminished drag from roaming is the primary positive driver from here. Although lockdowns of some degree are in place in Q4, their impact will be less severe than those in Q2.
 

Vodafone’s performance this quarter was hit both by COVID and an underlying deterioration in its operational momentum—disappointing given regulatory easing and easier comparables.

Vodafone’s guidance has been more prudent than most going into this pandemic and these results support that cautious stance. Whether it’s a case of Vodafone underperforming or the sector being less resilient than expected will emerge over the coming weeks.

The IPO of Vodafone’s towers business is imperative to maintaining its leverage targets and dividend. It will need to sell a chunky slice of equity and realise a hefty multiple in challenging market conditions.  The profile of the asset for sale will help but it all remains very finely balanced.

Vodafone’s financial metrics appear to be slowly ticking up and it is making some progress in narrowing its performance gap to peers. Signs that it may be moving away from a discount-led convergence strategy in Germany are very positive.

Organic EBITDA growth is highly flattered by one-off items and, as is frequently the case, even this headline EBITDA growth for FY20 is wiped out by currency depreciation in ‘Rest of World’ countries.

This lack of real progress on EBITDA and FCF and the muted outlook for both exacerbates Vodafone’s tight leverage position. There seems very little prospect of it unsettling the O2/Virgin Media JV in the UK.
 

European mobile service revenue growth improved by 1ppt to -1.2% primarily as a consequence of diminished competitive intensity in France. Trends elsewhere were largely flat.

The mobile sector is playing an important role in tackling COVID-19 and is likely to be relatively resilient in the short term with a broadly neutral financial impact. Longer term it will be exposed to the fortunes of the economy.

There are reasons to believe that the improvement in trends evidenced in the last quarter may continue as churn reduction takes the heat out of some markets, cuts to intra-EU calls annualises out and for most countries, end-of-contract notifications will only begin to impact in 2021.
 

Vodafone’s revenue performance remains decidedly lacklustre. Italy and Spain are struggling to bounce back, Germany is still languishing, and the UK’s 0.6% service revenue growth is the highlight of the quarter.

Liberty Global’s assets are disappointing both in terms of opening financials (revenues and EBITDA 8% and 12% lower than expected respectively) and outlook (now growing at half the rate at the time of deal announcement and guidance for Germany as a whole to be ‘flattish’).

Vodafone’s guidance for a pickup in revenue growth to more than 1% in Q4 is encouraging but these are very tentative steps forward in challenging times.

Employment reached an all time high in 2019 of 32.8 million people at work despite slower GDP growth in 2017-19. The tighter labour market has helped real wage growth. A two-tier jobs market has emerged, with high-grade skilled roles evolving in a wide range of service sectors, and a large pool of low-grade, part-time work  

The heterogeneous labour market has ensured that in recruitment classifieds, unlike property and auto, no digital player has achieved absolute dominance. In the layer devoted to the recruitment of professionals, served by LinkedIn, rising demand for more specialised roles has expanded the number of agencies, intensive users of digital tools to locate recruits and crack the problem of "approachability" of those already in the job  

Online job portals are rushing to improve their AI and programmatic capabilities as specialisation prompts a shift from keyword search to smart matching, leading to a boom in recruitment tech M&A. Traditional agencies such as Hays are upgrading their own data capabilities through acquisitions and partnerships with LinkedIn, Google, Salesforce and other data/tech providers