Berenberg recommends 'fundamentally mispriced' Vodafone
Vodafone is "very cheap", Berenberg said on Wednesday, but in a sector where investors are not keen to take risks and are being put off by "too much noise" about currency weakness in emerging markets.
FTSE 100
7,895.85
16:59 19/04/24
FTSE 350
4,341.08
17:09 19/04/24
FTSE All-Share
4,296.41
17:08 19/04/24
Mobile Telecommunications
1,784.13
16:59 24/01/22
Vodafone Group
67.00p
16:40 19/04/24
As far as Berenberg was concerned, Vodafone is "fundamentally mispriced" but after adding to "unpredictability" in Spain when Vodafone changed its football rights strategy, plus the ongoing worries around India and recent high leverage following the completion of its deal with Liberty Global, meant that its shares needed to see some earnings momentum in order to "drown this noise out".
"This has, however, been scuppered for a few more quarters," said Berenberg.
Analysts at the bank said Vodafone had "better momentum" in harvesting cost and service differentiation opportunities from network virtualisation compared to the likes of Orange and Deutsche Telekom, although it "needs to do more" if it wants to catch up to Telefónica.
Berenberg revised down its EBITDA estimates by 4-5% to reflect increased competitive intensity in the Spanish market, currency weakness in South Africa and Turkey, and lower international carrier revenues, resulting in a trimming of its target price on the shares from 250p to 243p
But with the share price having last closed just under 167p, the valuation "looks attractive", trading on a big discount to its peers on a 2019 normalised free cash flow yield of 8.8% and a dividend yield of 8.1%.