Similar to the reception of newly instated chief executive Margherita Della Valle, Vodafone Group PLC (LSE:VOD)’s first-quarter trading update on 24 July is “likely to be mixed”, predict equities analysts at UBS.
On the one hand, revenues will invariably see a notable improvement due to sweeping price rises in the communications sector.
On the other hand, broadband subscriber trends in Germany are expected to weaken following the recent 10% price hikes in the country.
As well as being Vodafone’s largest market, Germany is the group’s largest lossmaker.
In the latest financial year, Germany saw -1.6% service revenue growth and -6.1% EBITDA growth.
Vodafone is under intense shareholder pressure to turn this ship around.
According to UBS: “Commentary around the trajectory of broadband subscriber declines will be key and investors will be looking for signs that German broadband losses will peak in the second quarter once all the price rises have landed.”
Della Valle has gone on record stating that German network performance issues have been resolved, however, UBS expects around 1.7% additional subscriber losses in the country.
Also on the agenda is Vodafone’s recently announced merger with Three UK where the wrangling over approval has already started.
However, “while M&A upside/optionality is notable, investors will likely want to get comfort that weak operating trends at Vodafone have passed a trough before focusing on this”, noted UBS.
UBS has trimmed its free cash flow projection for the first quarter by between 2% and 3%.
The stock remains a 'buy' with a 12-month price target of 100p, representing a 33% upside against the publication price of 75%.
Note that “little” M&A synergies have been priced into this target.