Vodafone Group Plc (LON:VOD) shares have taken a pounding over the past couple of years, but analysts at Berenberg think shareholders’ pain could soon come to an end.
Shares in the FTSE 100 group have plunged by a third since this time last year, largely due to rising leverage, weakening revenue trends and a cut to the dividend.
READ: Vodafone spends €1.9bn in German 5G auction
But Berenberg thinks the tide is set to turn in the near future and has stuck a ‘buy’ rating on the telecoms giant.
“From hereon, we see a virtuous circle of improving revenue trend and faster deleveraging to drive a re-rating of the equity and restore confidence in the rebased dividend, which is yielding an attractive 6%,” the venerable German investment bank said in a note to clients.
“With the shares trading at a discount of 20-30% to the sector on levered and unlevered free cash flow metrics, we think the risk/reward is very attractive here.”
Revenue trends set to improve
Analysts expect services revenues to return to “modest growth” in the third quarter of the current financial year (six months away), with the growth trend improving to around 1% in the next financial year.
All that is needed for that to happen is for declines in Italy and Spain to moderate, which they believe should be possible.
Vodafone shares were broadly flat at 127.2p on Thursday morning, still some way short of Berenberg’s price target of 180p (was 190p).