Vodafone seems to be dividing City analysts at the moment, but in Tuesday’s falling market it has benefited from a positive rating for a change.
But now Deutsche Bank has begun coverage with a buy recommendation and 230p price target, saying its growth prospects look better, with hopes of an improvement in southern Europe, while there is always the chance of renewed bid interest. Deutsche analyst Robert Grindle said:
Vodafone shares did well last year and early this on excitement over the sale of [its stake in] Verizon Wireless and AT&T’s potential interest. Since then, the market has re-appraised the new-look Vodafone, unadorned by its US jewel and bid-speculation has subsided.
Whilst Vodafone shares do not look particularly cheap relative to peers, organic growth is starting to improve and the market discounts very little benefit from [investment programme] Project Spring or the synergies accruing from recent acquisitions. Economic recovery should also help and mobile data usage continues to be robust, both eventually driving higher growth and margins. In the meantime, dividend yield is attractive and recent weakness warrants initiation with a buy.
We struggle to accept the bearish view that mobile network operator consolidation in some markets will not result in a better competitive environment for Vodafone but acknowledge that new entrants can still cause trouble, eg BT in the UK (11% of our target Vodafone enterprise value). Mobile returns are already low in the UK however, and the market for Enterprise mobile is already competitive. Further UK regulation already allows good access to fixed, albeit at relatively modest margins.
Diversification is key here and southern Europe appears to be improving (with further consolidation underway) and emerging market assets have considerable potential. This all warrants a premium and Vodafone is likely to continue to attract speculation around a future take-out.
Vodafone shares are currently 1.1p higher at 194.9p, with the FTSE 100 down around 0.5%.
Also on the way up is Next, 25p better at £64.15, after it spent £8m buying back shares for cancellation. Analyst Nick Bubb said:
Over the last week or so, it has been noticeable that Next’s management have not been willing to buy back shares, even though the share price has been below their £66 limit, implying that Next have been worried about trading in October and weren’t confident about hitting their full-year profit targets, ahead of the 29 October pre-close update.
But yesterday Next moved back into the market at last, picking up around 126,000 shares at a price of 6406p, implying that weekend trading went well…
Vodafone rises in falling market as Deutsche Bank highlights growth prospects
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