UBS has hiked its valuation on Vodafone (LON:VOD), forecasting that the telco will deliver an underlying earnings increase of six percent per annum over coming years. The analysts expect the company to benefit from a growing top line and cost savings.
Vodafone’s share price rose in the previous session, adding 0.79 percent to close at 235.30p. The stock marginally outperformed the broader London market, with the benchmark FTSE 100 closing 0.32 percent higher at 7,695.88 points.
UBS upbeat on Vodafone
UBS reaffirmed Vodafone as a ‘buy’ yesterday, lifting its price target on the shares from 280p to 285p to reflect the recent strengthening of the South African Rand.
“Despite the recent rally in the shares, we think there is more to go for and see upside from mobile data monetisation, cost savings and mergers & acquisitions,” the analysts pointed out, as quoted by Proactive Investors.
The analysts expect the telco’s third-quarter trading update next month to reveal a 1.3-percent rise in organic service revenue (OSR), in line with the level of growth reported in the second quarter.
Proactive Investors further quoted the analysts as forecasting that growth in Spain will be healthy, but slow quarter-on-quarter due to increased promotional activity across the market. The UK in the meantime is likely to see underlying OSR growth masked by the impact of handset financing.
“We see Vodafone as cheap, offering a 7.6-percent EFCF (equity free cash flow) yield on a calendarised basis for 2018 and a 5.9-percent dividend yield ,” the analysts pointed out, adding that despite the recent rally, Vodafone’s share price was “only at similar levels to September 2016 when Reliance Jio entered the Indian market.”
The comments come as the FTSE 100 group updated investors on its merger deal in India, disclosing that it expects to receive a minimum of €256 million as a result of a sale of a small stake in its merged business to Aditya Birla Group.