JPMorgan Cazenove argues that Vodafone’s (LON:VOD) management should voluntarily cut the dividend to support deleveraging efforts and restore confidence, Sharecast has reported. The comments came as the broker lowered its price target on the blue-chip telco.
Vodafone’s share price has slipped into the red in London this morning, having given up 0.56 percent to 138.18p as of 10:29 GMT. The shares are underperforming the broader UK market, with the benchmark FTSE 100 index having climbed marginally into positive territory and currently standing 0.11 percent higher at 7,138.15 points.
JPMorgan Cazenove trims valuation
JPMorgan Cazenove, which sees Vodafone as an ‘overweight,’ lowered its price target on the stock from 230p to 227p. Sharecast quoted the analysts as commenting that while the recent service revenue downgrades had not helped, the ‘real issue’ was investor angst about the company’s capital structure and dividend sustainability.
While the telco’s management believes a €1.2-billion reduction of operational expenditure over the next three years, supported by cost-cutting and sales of non-core assets, can support deleveraging, improve dividend cover, and restore investor confidence, the broker reckons that this is ‘feasible’ but worries that “the dividend debate is beginning to prove too great of a distraction”.
JPMorgan Cazenove argues that while a voluntary dividend cut “may not be a necessity,” it is “a sensible option,” with a 30-percent cut leaving the payout to shareholders well covered by free cash flow, supporting additional deleveraging and still offering an attractive seven-percent yield.
Other analysts on blue-chip telco
Credit Suisse, which is bullish on Vodafone with a ‘buy’ rating, set a price target of 210p on the shares yesterday. According to MarketBeat, the blue-chip telco currently has a consensus ‘buy’ rating and an average valuation of 197.05p.