Ahead of Vodafone Group PLC's (LSE:VOD) final results, analysts and investors are weighing the significant discount of the shares compared to the wider telecom sector, versus the FTSE 100 company's latest developments.
One key issue is the “rollercoaster year ahead” for Vodafone Germany, according to Berenberg analysts, who want more clarity on management's strategy for dealing with the challenges of its largest global market, with cable TV unbundling and a national roaming contract.
While the roaming contract with 1&1 is expected to bring a positive shift in financial trends in the second half, there is concern over the departure of Philippe Rogge, Vodafone Germany's chief executive, given the crunch time for Vodafone’s last major continental outpost.
“One of the main areas of focus at the full-year results [in May] will be Vodafone’s commentary around German cable TV unbundling and how much of the €800 million of revenue exposed it expects to retain,” said Berenberg. “This may make for some sobering financials in the next few quarters in Vodafone’s largest market.”
Following the sale of lossmaking Vodafone Spain, Berenberg is now forecasting the company will make an underlying profit (EBITDAaL) of around €12.1 billion and adjusted free cash flow of approximately €2.7 billion for the fiscal year 2024 – though these estimates do not factor in the Italian divestiture nor the pending Three merger.
Valuation discount
Berenberg highlighted that the company's shares trade at a significant discount compared to the telecom sector, suggesting a potential value opportunity for investors.
This is underscored by Vodafone's efforts to streamline its operations and focus on markets where it can sustainably generate returns above the cost of capital.
Currently priced at 69p, Berenberg reckons the stock has a fair value at 78p.
But with chief executive Margherita Della Valle working under the mandate of simplifying global operations, this price target is hardly in stone.