13th May 2022 11:02
(Alliance News) - Vodafone Group PLC will need to provide a cautious outlook when it issues annual results next week, analysts at Jefferies commented on Friday, as the telecommunications firm faces "forecast risk".
The investment bank cut its recommendation for the FTSE 100 listing to 'hold' from 'buy'. It sliced its price target to 125.00p from 150.00p.
Vodafone shares were down 1.4% at 117.12 pence each in London on Friday morning. The stock is down 16% over the past 12 months.
Jefferies noted that investors may be attracted to Vodafone's defensive qualities. The stock is up 3.9% so far this year, while the wider FTSE 100 has lost 0.6%, as markets have been stifled by worries both about inflation and the efforts of central banks to combat it.
However, those very same issue also have the potential to cripple Vodafone, Jefferies said. The cost of living crisis, caused by rampant inflation and, more specifically, soaring energy prices, make Vodafone's near-term outlook tricky.
"It is not obvious how management can offset likely wage increases this year by running even harder on employee cost reduction," Jefferies said, adding that Vodafone's business lacks the "obvious inflation safety valves" that telecommunication industry peers may have.
Jefferies added: "We recognise the defensive attractions of large-cap telco. But Vodafone's credentials are undermined by forecast risk and a strategic plan not playing out."
Vodafone is in a "tight spot" and it needs to announce cautious guidance next week, the US investment bank said. Vodafone reports annual results on Tuesday. Vodafone is punching "below its weight" in the key Germany market.
"Consensus anticipates a comfortable outlook for Vodafone Germany, despite burgeoning evidence to the contrary. Last week's decision to make permanent a EUR40 promo on 1 gigabits per second cable broadband illustrates weak pricing power. Potential capital expenditure upgrades will be defensive in nature, keeping pace with Telefonica Deutschland's mobile quality gains," Jefferies added.
Jefferies said its preferred picks in the telecommunications market are London-listed BT Group PLC, Frankfurt-listed Deutsche Telekom AG and Orange SA, listed in Paris.
By Eric Cunha; [email protected]
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