UPDATE LONG VODAFONE

REITERATE BUY INTO NUMBERS TOMORROW

Sector has under performed the market ytd due to numerous factors. EU roaming/CAPEX/revenue trends/Rising rates/positioning.

We now feel that the sector and especially Vodafone valuation and expectations have re based, we feel the risk reward is now to the upside.

The disruptive entry of Jio in India may pressure revenue but it is known by the market and reflected in the share price.

So far in this earning season all reported incumbents have beaten and reported improving trends.

Vodafone has now had 4 consecutive quarters of improvement and is trading on a sector multiple for above sector average growth.

With over a 5% div yield,this is good in both a sector and a market context. We expect good numbers and should see the stock re rate onto a sector yield which should see it through £2.50. Currently -1.6% on the trade.

 

BUY VODAFONE
RE-RATING STORY

Monday • 23 May 2016 • 12:01

Trading on a sector multiple for above sector average growth following 4 consecutive quarters of improvement. Importantly the under-performance in Germany vs DT has now been eliminated, a key source of uncertainty over recent quarters.

The mid term targets put it somewhere somewhere between 5 and 10% EBITDA growth with a fully covered dividend or management don’t get paid. That is very solid EBITDA growth and comparable to LBTYA which trades 2 turns more expensive.

Perhaps this negates the valuation discrepancies the two sides had and brings them back to the table? Upside M&A optionality.

Over a 5% div yield is good in both a sector and a market context. With uncertainty removed we should see the stock rerate onto a sector yield which should see it through £2.50.

BUY.