Analysts are downbeat about Vodafone’s [VOD] half-year results for fiscal year 2023, which are due to be announced before markets open on Tuesday 15 November.
According to estimates compiled by Bloomberg, organic service revenue from operations in Spain and Italy is forecast to slow. Rapidly rising prices are also expected to be among the headwinds cited.
Other challenges facing Vodafone ahead of its earnings announcement include execution problems in Germany and a pressured free cashflow outlook. Despite these concerns, however, Citi analysts recently concluded that Vodafone’s business is “healthy” and that the company may be better suited to compete in the near term than many of its competitors.
In response to activist pressure, CEO Nick Read has been selling off parts of the company. On 9 November, Vodafone said that it would net a minimum of €3.2bn by selling a major stake of its wireless infrastructure company Vantage Towers to private equity firms GIP and KKR. The deal will see around half of Vodafone’s 81.7% stake in Vantage Towers acquired by a newly created joint venture.
Vodafone shares set to reverse downtrend
Vodafone shares have been stuck in a downtrend since late 2017. So far this year, the stock has fallen 10% (through Friday 11 November), underperforming the FTSE 100’s 2.5% decline over the same period.
However, Michael Kramer, founder of Mott Capital Management, believes that this downward momentum appears close to ending, if it has not ended already. “The stock has recently risen above a short-term downtrend. The shares rose above 99.50p at the beginning of October,” he told CMC Markets.
Kramer expects that this could lead to a short-term rally, potentially lifting the stock – which closed at 103.72p on 11 November – to 110p. “A break above 110p could even lead to a much higher advance, with resistance levels at 122p and then 132p. But at 132p, Vodafone runs into a significant downtrend that started back in 2019, which is likely where any rally ends for now,” said Kramer.
Added Kramer: “The relative strength index [RSI] shows there may be a change in short-term momentum taking place. The RSI has risen above a downtrend and it could be a significant signal if it can hold, as it would suggest that the stock has shifted from short-term bearish to bullish".
In the long term, however, Kramer isn’t as bullish. “The stock is trading near its 2009 lows, and that 95p to 100p zone is critical, with a break of that support level potentially sending the shares to around 80p,” he commented.
“Additionally, the stock has failed to advance beyond its 200-week moving average multiple times in 2022,” said Kramer. “It almost appears as though the 200-week moving average is acting as resistance and helping to drive the shares lower. If the stock can rise above that 200-week moving average, it would be a big positive. But for now, such ambitions are premature".
Germany customer base hit
Vodafone performed “in line with expectations” during the previous quarter, according to a company statement. The company announced that revenue grew 1.6% year-on-year to €11.28bn in Q1, and added that it was “on track to deliver FY23 guidance, with adjusted EBITDA expected to be between €15bn and €15.5bn”.
New legislation in Germany resulted in Vodafone losing a significant number of TV and broadband customers in its most important market during the second half of 2022. This contributed to a 0.5% contraction in service revenue there during Q1 2023.
Following the release of Q1 results, CEO Nick Read hailed the group’s performance, adding that while Vodafone is “not immune to the current macroeconomic challenges, [it is] on track to deliver financial results for the year in line with our guidance”.
Vodafone’s share price was unchanged on 25 July, the day the Q1 trading update was announced. However, the stock fell 5.2% the following day.
Analysts rate Vodafone shares a ‘hold’
Despite their concerns about the half-year results, analysts are, on the whole, upbeat about Vodafone’s prospects. Among 24 analysts polled by the Financial Times, six gave the stock a ‘buy’ rating, while there were seven votes for ‘outperform’, eight for ‘hold’ and three for ‘underperform’.
However, JPMorgan analysts labelled the Vantage Towers deal a disappointment. The fact that it wasn’t a full sell-down limited the “upfront value crystallisation”, according to the analysts. On 5 October, JPMorgan analysts lowered their price target from 165p to 120p, a day after Oddo BHF upgraded Vodafone from ‘neutral’ (‘hold’) to ‘outperform’.
Among the 21 analysts at the FT offering 12-month price forecasts for Vodafone, the median target of 142.05p represents an uptick of 36.5% from the 9 November close. The low target of 100.22p sees the stock declining 3.7% over the next year, while the high target of 214.38p envisages 105.9% gains.