Credit Suisse has downgraded its targets for Vodafone Group PLC (LON:VOD), citing recent foreign exchange changes and commentary from a management presentation, leading to lower forecasts for headline earnings and free cash flow.
The target reduces by 10p per share, to 225p, nonetheless, the Swiss bank retains a positive ‘outperform’ rating.
READ: Vodafone divi “at risk” but still worth a punt, says Citi
Analysts noted that some near-term challenges remain for Vodafone – namely softer growth in the second quarter, uncertainties around the Liberty deal closing, and balance sheet pressure – but, they believe that 2019 should see better trading.
“Taking a slightly longer-term view we expect the outlook for the stock to improve and see the recent weakness as providing a more attractive entry point,” the analysts said.
“We see this recovery as driven by 1) service revenue growth inflecting and returning to modest growth in FY19 (CSe); 2) Digitization and synergy realisation to drive margin expansion (> 1pp margin expansion p.a. in FY19-20); 3) improving visibility on spectrum costs (no negative auction surprises so far) and peak leverage.”
Ahead of half-yearly results due in November, the Credit Suisse analysts said they believe a reiteration of guidance would be positive for the telecom share price, even if the service revenue is slowing.