Telefónica on Friday promised to lift next year’s dividend by 22 per cent as Spain’s largest telecommunications group maintained its mid-range earnings guidance despite a sharp deterioration in the domestic market.
The company, which is the world’s third-largest telecoms group by customers, said in a regulatory filing that the total payout would be €1.40 in 2010, compared with €1.15 this year.
The increase was better than expected, and the shares beat a declining Madrid market to climb nearly 1 per cent, to €19.4, in early trading.
Telefonica, which is hosting an investors’ day at its Madrid headquarters, forecast revenue growth of between 1 per cent and 4 per cent over the next three years, in line with the downgraded forecasts delivered in February this year.
It said operating income before depreciation and amortisation would grow by a compound annual rate of between 2 per cent and 4 per cent over the same period. It reiterated that earnings per share next year would be €2.10, downgraded in February from €2.30.
The guidance was generally well received by analysts, although Bernstein Research of London said the company had “abandoned its promises for 2009 and . . . .moved the goalposts for its previous guidance”.
“This is an interesting strategy,” it said in a note to clients. “It essentially allows Telefónica to admit that the rest of the year will not be good, and worse than investors were expecting.”
Analysts also noted the end of a share buyback programme at the company. UBS said that “this could leave the way open for merger and acquisition (activity) in 2010”.
Telefónica this week launched a €2.5bn ($3.7bn) bid for GVT, a small Brazilian fixed-line and broadband operator also being courted by Vivendi of France.
The company is counting on Brazil, and the rest of Latin America, to drive growth over the next few years as fierce competition, regulatory controls and recession in Spain and other mature European markets compress profit margins.