Vodafone’s £19bn turnaround plan inspires ‘little confidence’ in analysts

6th June 2014


The promised turnaround at telecoms giant Vodafone (VOD) is more a ‘leap of faith’ than a certainty, according to analysts at Jefferies.

Following its results at the end of May, which saw it write off £6.6 billion off the value of its operations, consensus forecasts around Vodafone have been lowered.

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Jefferies analyst Jerry Dellis has retained a ‘hold’ rating on the stock and lowered his target price from 240p to 210p. Shares were trading up 1.5% this morning at 207p.

Although Vodafone has reiterated its current £19 billion investment plan, dubbed ‘Project Spring’, will provide short-term pain for the company but long-term gain, Dellis said there was ‘little to inspire confidence in the turnaround’.

Dellis was particularly concerned about how Vodafone reacts to competition, pricing in Italy and the aims of Project Spring.

‘Vodafone seems intensely reactive to competitor aggression, of which there is plenty,’ he said. ‘Italy’s bleak pricing outlook is much discussed but Vodafone’s premium across the top four [mobile providers] creates further risk. We are sceptical that trends will improve…We recall that Project Spring was intended to restore pricing power. That ambition is less emphasised now. The turnaround still feels like a leap of faith.’

Although Dellis’ forecasts earnings before interest, tax, depreciation and amortisation (EBITDA) for 2015 stands ‘mid-guidance’ at £11.6 billion he does expect a large improvement next year in earnings.

‘We still assume strong recovery in underlying trends,’ he said. ‘On an underlying basis…our forecasts assume an abrupt improvement in EBITDA trends: from -£1 billion year-on-year in 2014 to -£0.4 billion in 2015. We model underlying stability by 2016 with growth after that…to £0.6 billion gain in 2018.’

Dellis also said shares ‘valuation is now better aligned’ after shares fell 16% year-to-date.

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