Buy Vodafone Group PLC (LSE:VOD) shares on weakness, suggested Deutsche Bank, after the telecoms group's new strategic roadmap underwhelmed investors and most other parts of the Square Mile earlier in the week.
"We see material value," said analyst Robert Grindle, "and so do recent buyers" of the stock, alluding to the major strategic purchases by e&, Iliad and Liberty Global.
Vodafone shares fell 7.4% yesterday as new chief executive Margherita Della Valle seemed to dash hopes of an imminent break-up of the group as she announced her turnaround plan for the FTSE 100 group, including keeping the dividend and cutting 11,000 jobs as part of 'right-sizing' for medium-term growth and returns.
The Deutsche analyst said the guidance for the current year was slightly light on earnings and 10% below expectations on free cashflow, the latter mostly due to the loss of German upfront TV billing.
Alluding to his recent note about the 'series of unfortunate events' befalling the company, Grindle said in a note on Wednesday that after the "bitter lemony" of late, there are potential "reversals ahead" and recommended investors to "buy on weakness" as strategic investors e&, Ilian and Liberty "likely will".
The analyst said the conference call with investors and analysts "provided comfort" but "saw greater attention to downside risks than upsides".
Providing a counter, Barclays cut its price target to 100p from 110p and kept its 'equal weight' rating, saying that the call suggested there was "no quick fix" and contained "promises of 'this is the bottom' for EBITDA and free cash flow".
The commentary from management on the conference call centred on driving an improved customer experience, improved operational performance, and improved returns, which analyst Maurice Patrick said was "a tacit admission (in our view) that Vodafone needed to re-invest, that it would take time to see the results, and that there are no 'quick fixes'."
Patrick added: "Hopes of a voluntary break-up seemed to be dashed with management appearing to confirm Vodacom as a core asset, and only Spain being put under strategic review."
Looking at Vodafone's valuation, he said the shares screen as "inexpensive on levered multiples, though less so on EV-based metrics".
Indeed, on Barclays' March 2024 estimates, Vodafone trades for 6.5 times on an EV/EBITDA and an 8% for equity free cashflow yield, 10% dividend yield and 6% unlevered free cashflow, all adjusted for spectrum costs.
Barclays sees market trends "looking challenging for Vodafone across much of the footprint for the quarters ahead".