Morgan Stanley (NYSE:MS)'s latest research note on Vodafone Group PLC (LSE:VOD) suggests a mixed bag for the telecom behemoth.
While the company is expected to maintain stable top-line growth rates of around 3.5% year-on-year, it faces challenges, particularly in the form of declining earnings before interest, taxes, depreciation and amortisation (EBITDA).
The first half of the fiscal year is expected to see a decline in group EBITDA by 3%, largely attributed to rising energy costs.
According to analysts at the US bank, Vodafone anticipates energy costs to be a significant headwind, costing the company around €400 million this year. This is expected to have a more pronounced impact in the first half, affecting profitability notably in its Italian and UK businesses.
Looking ahead
However, the second half of the year could bring a change in fortunes. Morgan Stanley (NYSE:MS) forecasts a positive uplift in EBITDA, driven by reduced energy costs and company-wide cost cuts.
The UK and Italy, which were hit hard by energy costs in the first half, are expected to see a strong bounce back in profits.
Vodafone has also been active on the strategic front. It has announced a potential merger with 3 in the UK, which is pending antitrust and shareholder approval.
The deal aims for £700 million per annum of targeted synergies by year 5. Additionally, Vodafone Germany has signed a new wholesale agreement with 1&1, which could have long-term implications for both companies.
Mid-afternoon, the shares were up almost 2% at 81.58p.