James Boxell is an editor with Bloomberg Gadfly. He worked previously at the Financial Times in a variety of writing and editing jobs. Before becoming a journalist, he helped launch a legal technology startup.

Vodafone is a company that requires patience from its investors. Whether it's pondering a merger with John Malone's Liberty Media or engineering a turnaround in its European business, the mobile phone giant doesn't give the impression of being in a hurry.

In one sense that's a good thing, especially for a business valued for its dividend. Mergers and acquisitions aren't to be indulged in lightly, for all the promises from bankers about synergies. It also reflects the scale of the task facing the industry: Vodafone isn't the only European carrier to have struggled with how to respond to fierce price wars and burdensome regulation.

Nevertheless, it has under-performed. Its shares have risen about 1 percent this year compared with a 13 percent increase for the broader European telecoms industry as measured by the STOXX 600 telecommunications index.

Lagging Behind
Source: Bloomberg

Vittorio Colao, CEO since 2008, says the company has now reached a "turning point,'' returning to organic growth in the six months to September in both service revenue -- the money received from its own customers and others that use its network -- and earnings before interest, tax, depreciation and amortization. It made a slight positive adjustment to full-year ebitda forecasts (including a one-off gain), helping push its shares up by as much as 5 percent in London.

So Tuesday's half-year earnings support the argument Vodafone is one of the best-placed European telecommunications companies to take advantage of a broader market recovery, brought about by people's boundless appetite for mobile data and the lessening of price pressure as some markets consolidate. 

Earnings have been held back by Project Spring, Vodafone's multi-billion pound program to modernize its network, which has temporarily inflated capital spending. There was a free cash outflow of 500 million pounds in the first half related to the plan.

This spike in capex will end next year. Alongside some solid cost controls in Europe, that has prompted expectations that the return to ebitda growth will be sustained and improved upon.

Yet it's still difficult to get too excited about the recovery in Europe. Like other telcos, the decline in service revenues did moderate to 1 percent in the second quarter, compared with a 1.5 percent fall in the first three months. Much of that was down to Spain, with little sign of improvement in Germany and the U.K.

And even though Project Spring is drawing to a close, Vodafone's need to spend is not going to disappear as it pursues sales growth and customers by providing better network performance, an area where it hasn't always been a star. Analysts at Macquarie argue that the ongoing drain of capex might lead to a short-term lowering of its 5 percent dividend yield.

Vodafone's enterprise value is about 7 times expected ebitda over the next 12 months, according to data compiled by Bloomberg, putting it roughly in line with the rest of the European sector. There's an argument that it might benefit from rivals such as BT being distracted by their own large-scale M&A. But unless it rekindles the slow-burning talks with Malone -- a possibility given the lack of strategic options elsewhere -- it's hard to see patience bringing much more reward.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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