Berenberg argues that Vodafone (LON:VOD) is ‘very cheap,’ but in a sector where investors are not keen to take risks, WebFG News reports. The comments come after earlier this week, Credit Suisse lowered its valuation on the shares, citing recent foreign exchange changes and commentary from a management presentation, leading to lower forecasts for headline earnings and free cash flow.
Vodafone’s share price has fallen into the red in today’s session, having given up 0.64 percent to 167.74p as of 14:39 BST. The stock is underperforming the broader UK market, with the benchmark FTSE 100 index having climbed into positive territory and currently standing 0.41 percent higher at 7,361.01 points.
Berenberg sees telco as ‘very cheap’
Berenberg, which sees Vodafone as a ‘buy,’ while trimming its valuation on the stock from 253p to 243p yesterday. WebFG News quoted the analysts as arguing that while the blue-chip telco is ‘fundamentally mispriced,’ ‘unpredictability’ in Spain when Vodafone changed its football rights strategy, the ongoing worries around India and recent high leverage following the completion of its deal with Liberty Global, meant that its shares needed to see some earnings momentum in order to ‘drown this noise out’.
“This has, however, been scuppered for a few more quarters,” the broker pointed out, adding that the blue-chip telco had ‘better momentum’ in harvesting cost and service differentiation opportunities from network virtualisation compared to the likes of Orange and Deutsche Telekom, although it needed to do more if it wanted to catch up to Telefónica.
Broker revises down earnings estimates
Berenberg further revised down its EBITDA estimates by four-five percent to reflect increased competitive intensity in the Spanish market, currency weakness in South Africa and Turkey, and lower international carrier revenues, with the move resulting in the lower price target on the shares.