Buying opportunity after a market-sanctioned H1 release

A disappointing H1 report with EBITDAaL down by 2.6% and a downward revision to the EBITDA and FCF guidance. However things are now moving and we can credit the CEO for making the recent Vantage deal and the combination with Three. Missing opportunities in Italy with Iliad could also evolve as Niel bought a 2.5% stake in Vodafone last September. This disappointing release and the sell off in the stock market this morning is an opportunity to invest in the stock.

A bland trading update

A bland trading update with Q1 service revenues up by 2.5% yoy and lfl (vs+ 2.5% in Q4). We maintain our opinion at Buy. The stock is currently around the 130p level. We are still waiting for a catalyst to boost the stock which remains discounted to its peers due to the scepticism and mistrust towards its CEO (under fire after missing opportunities in Italy, Spain and with Vantage).

2021/22 was correct but not enough to reduce pressure on Nick Read

A correct release globally in line with expectations (slight slowdown in revenue growth in Q4 but a slightly better than expected FCF for the full year) but the outlook given by management for 2022/23 is quite cautious (this is the upper range of the guidance which corresponds to our estimates). We maintain our opinion at Buy. Note, however, the CEO Nick Read is rather under fire after missing opportunities in Italy (Iliad), Spain (Orange-Masmovil merger) and with Vantage.

An interesting Italian offer from Iliad but probably insufficient

Iliad makes an offer to buy 100% of Vodafone-Italia for c.€11-11.5bn. These mobile activities with a solid 35% EBITDA margin could help Iliad conquer a significant market share on the fixed side by financing its launch and ramp-up. But Vodafone may not be very eager to sell these assets, so this offer won’t be enough to tilt the balance. These takeover proposals show, however, that telcos are undervalued while they are still considered primarily as dividend stocks.

A solid H1 with a free cash flow guidance raised

Stock up by 5% following a good H1 release. Revenues were globally in line with expectations but EBITDAaL was better than expected (+6.5% yoy). The group has also raised its full-year free cash flow from €5.2bn to €5.3bn. Remember, the fact that it would be down by 10% over two years had worried the market six months ago and led to a continued decrease of the stock price (-25% in six months, however, also due to the pressure on rates).

A good but logical recovery outside Germany

Vodafone released this morning a solid Q1 in terms of revenue, a good performance that is quite logical however as there is partial recovery compared to Q2 20. Remember, the key point which had worried the market three months ago with the annual release was that free cash flow would be only €5.2bn for 2021/22 vs €5bn in 2020/21 but vs €5.7bn in 2019/20. Vodafone has confirmed this number this morning. We maintain our Buy opinion on the stock.

Higher capex for 2021/22: is it a real issue?

At first sight a reassuring release with a correct EBITDAaL outlook… if there was not a worrying detail: capex will be higher than expected. The stock was indeed down by 5% this morning. Capex should indeed grow by 6% yoy in 2021/22 but, as for most telcos, this is for a good cause. Certainly the dividend should remain flat for 2021/22 but, given its current 7.5% dividend yield, we maintain our Buy recommendation on this stock with increasingly solid German fundamentals.

Service revenues returned to slight growth in Q3

Service revenues returned to slight growth in Q3, as they were up indeed by 0.4% yoy: an expected number confirming, however, an improving trend as they were respectively down by 0.4% and 0.8% in Q2 and Q1. We believe that Vodafone should be able to maintain its dividend at its current levels. Given the modest growth that the group should clock in the coming years, notably in Germany, we maintain our Buy recommendation on the stock which is still 12% below its pre-COVID-19 prices.

A reassuring flat EBITDAal margin in H1

As in Q1, a quite correct resilience to the COVID-19 impacts in Q2. The good news is indeed the H1 EBITDAal margin, which was stable yoy despite the slight decline in revenues. Free cash flow should therefore be at least €5bn for the whole year. So we have no concerns about Vodafone’s dividend and we remain at Buy on the stock.

An expected resilience to the COVID-19 negative impacts in Q1

An expected resilience to the COVID-19 negative impacts in Q1. The group can indeed congratulate itself on having strengthened in recent years its fixed activities: in Germany, which represents 40% of Vodafone’s activities in Europe, service revenues were flat yoy in Q1. The monetisation of its infrastructure assets is continuing and, given the slight growth that the group could offer in the coming years, we maintain our Buy on the stock.

A slight growth story with a sustainable dividend

Quite a good Q4 supported by improving commercial momentum in Europe. The annual EBITDA grew eventually by 2.6% yoy reflecting the cost programme’s success. The €0.09 dividend is maintained. Vodafone is more highly indebted after its deal with Liberty-Global, but its dividend (cut last year) seems now more in harmony with its balance sheet. Besides, the monetisation of its infrastructure is continuing. Given therefore the slight growth Vodafone should offer in the coming years, we maintain our

A reassuring H1 but India still worries

A quite correct H1 for Vodafone with a return to growth in terms of revenue in Q2. The performance is still very solid in Germany (which will represent next year 30% of Vodafone’s revenues) and trends are improving in South Africa, Spain and Italy despite fierce competition or regulation. We maintain our opinion at Add on the group with a 15% upside.

A trading update overshadowed by the creation of Europe's largest tower company

The correct but not more than a Q1 trading update has been largely overshadowed by the announcement in parallel of the creation of Europe’s largest tower company with preparations underway for a variety of monetisation alternatives, to be executed during the next 18 months, including an IPO. The EV of this company could be at least of around €13.5bn. It is obviously excellent news and could be the catalyst that everyone expected to boost the stock, finally. We maintain our strong Buy.

Is the dividend cut a buy signal?

Vodafone has released its annual results. Although there was not much new on the operational side, the dividend was cut to €0.09, as was unfortunately expected (but it was probably the right thing to do). This corresponds to 6% of yesterday’s stock price (vs 10% previously). The major telcos, offering a 4.5-5.5% yield, lend it some upside if the market has confidence, like us, in the sustainability of the dividend. We maitain our Buy on the stock.

A Q3 release under pressure from the markets

Although the Q3 numbers are not so bad and the dividend for 2018/19 should be maintained, the pressure on the stock to make Vodafone cut its dividend could continue in the coming months with uncertainty about future Vodafone numbers once the acquisition of Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania is completed. The only thing that could reassure the markets today would be the sale of some tower assets.

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Hybridan Small Cap Feast 20/12/2022

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CyanConnode* - H1 results published, with encouraging outlook

H1 results published, with encouraging outlook

Morning Note – 14 November 2022

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Arden Research Best Ideas 2022

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SHORE CAPITAL - Initial Trading Comment