It appears we’ve reached the point in the stock market cycle where buying shares in Vodafone Group PLC (LSE:VOD) is pitched as an investment idea.
‘Buy Vodafone’ may not be the most novel or rousing investment call anybody is likely to encounter, nonetheless, Deutsche Bank today claimed that telecom share that’s ordinarily a staple of long-term portfolios presently offers a short-term opportunity.
Moreover, with a price target of 225p, Deutsche’s ‘buy’ recommendation suggests more than 70% upside to the current market price of around 127p.
Deutsche Bank analyst Robert Grindle, in a note, said Vodafone is valued favourably compared to its peers.
Grindle added there’s “little reason why telcos such as Vodafone won't continue to be a relative safe harbour in difficult markets.”
Vodafone is set for a 6.2% dividend yield for the 2023 financial year, outperforming a sector forecast of 4.4%, the analyst noted, who similarly pointed to a predicted free cash flow yield of greater than 10% versus 6.7% for the sector.
Evidently, Grindle reckons picking up Vodafone shares as more than a reactionary or defensive play.
“If the market rallies, Vodafone shares should not suffer and the group has high exposure to the infrastructure thematic (we expect more deals across the sector), the group's mobile price-volume mix is improving in favour of more flexibility in capital intensity, and management are taking steps to improve operations and value visibility and to grow the business by mid-single digit in the medium term,” Grindle said.
He, meanwhile, added: “Vodafone is well-exposed to the infrastructure thematic via [its interest in] Vantage Towers), the deconsolidation of which should prove cathartic (and see leverage below target which could be good for returns) and cable has negligible implied value - which in our opinion is unsustainable.”
In terms of downside threats, the analyst noted that emerging markets risk and forex should be factored in, whilst conversely noting that the telco’s 11-year fixed debt position is supportive.