Vodafone Group PLC (LSE:VOD) has a high-stakes earnings call ahead of it, when management discloses its third-quarter results to shareholders.
The beleaguered British telecoms multinational cut its full-year earnings and cash flow forecasts in November of last year, laying the blame on the global macroeconomic climate, rising energy costs and increased inflation.
Adjusted EBITDAaL is currently forecast between €15bn and €15.2bn (original guidance had an upside of €15.5bn), while adjusted cash flows are forecast at €5.1bn, revised down from €5.3bn.
Any further downward revision of these estimates next week would be bad news, and there’s no getting around the issues facing the group.
Let us count Vodafone’s worries:
- A rudderless ship with no chief executive in place for Nick Read’s March departure
- A mass exodus of activist investors (although the group’s major institutional investor e& recently upped its stakes)
- Mass firings in an effort to find €1bn in cost-saving measures
- A partial sale of Vantage Masts which, while allowing Vodafone to reduce its debt pile, gave mixed messages for analysts
Yet in the face of these challenges, analysts aren’t universally pessimistic about Vodafone as an investment opportunity.
Earlier this week, Deutsche Bank surmised that Vodafone’s run of bad luck could be coming to an end, stating: “The current team is on the cusp of monetising towers at highly attractive valuations, deleveraging materially and cutting costs to offset an energy headwind which is rapidly reversing, whilst investing heavily and raising prices.”
The bank maintained a buy rating, albeit with a lowered target price of 195p (previously 215p).
Vodafone’s attractive dividends will be one of the key focal points on Wednesday. With yields above 8%, VOD is a popular choice among income portfolio investors, but with a below-one dividend cover ratio, one wonders how sustainable this currently is.
Deutsche Bank doesn’t seem worried, stating: “Given the energy price reversal and disposals we see little rationale for a dividend cut though one is more than discounted."
“We think investors will be focused on operating trends in Germany and reassurance that issues are temporary and IT/customer service related rather than being a structural issue with the network that would require significant capex investment," said UBS.
“Separately, investors will also be looking for an update on the appointment of a new group CEO, progress on UK M&A with the company announcing in October it was in talks with Three UK on a potential combination (link) and whether there is any clarity on Etisalat's intentions after having built a 12% stake."
Jefferies’ outlook is more conservative, offering a target share price of 85p and a hold rating, due mainly to revenue declines on the continent
Jefferies’ full-year guidance is below consensus, with EBITDAaL forecast at €14.85bn on the upside €14.48bn and cash flows of €4.95bn on the upside.
Is Jefferies’ pessimism justified? We’ll find out when Vodafone faces shareholders on Wednesday, February 1.