Vodafone: Share Price is Bone of Contention
26/5/2000 17:43 by Annemarie Quill
Telecoms Correspondent
A war over Vodafone's (VOD:LSE) (Board) share price has been raging between analysts and the market for two months. Analysts have continued to churn out buynote after buynote, and yet Vodafone's share price remains in a slump. Tuesday's annual results from the world's largest mobile phone company may swing the fight definitively in one direction. But which way will it be?
Year-end price targets of 400p to 600p are common throughout the leading London banks. The analysts who push these buynotes are standing firmly by them in face of strong opposition from the equity markets which have moved the stock steadily down since Vodafone sealed its audacious bid for Mannesmann. If next week's figures suggest that the analysts have been right all along, then this could be good news for those investors who have bought Vodafone shares over the past two months and have seen their value fall to a low of 227p.
But why have these highly-paid analysts stood firm in the face of such pressure? The answer is an overwhelming belief in the future of the company's data services provision.
Fanos Hira, of Morgan Stanley, who recommended a year-end price target of 400p, based his target on Vodafone's strong assets and increasing use in the future of data services.
He said: "One of the most positive developments over the last quarter is that the company has had an awakening of sorts in its global data strategy. The global data platform announced in January and management's concession that it will adopt an integrated data-centric strategy, provides us with confidence that this company has the necessary skill base to exploit what is a vast opportunity."
Hira predicts that Vodafone will reach five million ISP subscribers by mid-2001, compared with 2.8 million subscribers at present. The merchant bank lists a number of factors that will drive up the share price: a closer relationship with Hutchinson Whampoa in Asia, the disposal of Orange, and the WAP opportunity.
Investec Henderson Crosthwaite, which also recommends Vodafone as a strong buy and has a 400p year-end target, echoes Morgan Stanley's opinion that the value lies in the potential growth of Vodafone's data business.
Chris Godsmark, of Investec, said: "Following the Mannesmann acquisition, Vodafone is uniquely positioned as the world's leading mobile operator. Its spread of assets will be a significant advantage in the move to data over mobile. It will be able to pick and choose content suppliers, benefit most from the development of uniform next generation technologies, and reap significant economies of scale from equipment procurement."
Investec analysts also point out the substantial value of Vodafone's assets across the world and the important role it will play in the roll out of third generation mobile services.
Warburg Dillon Read is another major player convinced Vodafone is a strong buy and has a price target of 530p. It stressed the increased cashflow which will be gained from these data services as a significant reason behind its beliefs.
But what about the factors that have led the market to drive the stock down over the last month: the debt, and the colossal costs of acquiring 3G licences across Europe?
Warburg acknowledges the high cost of acquiring 3G licences across Europe, but believes that Vodafone can afford it. According to the bank's latest telecoms report: "Vodafone's total UMTS (third generation) bill could prove expensive. However Vodafone is in a position to extract more value from these licences than any other operator. For example, we believe that the difference in value for the UK business of having or not having a UMTS licence would be around œ10 billion. For a new entrant, assuming 13% market share by 2010, we value a Greenfield UMTS operation at around œ4.5 billion. "
Chase Manhattan, which has a price target of 440p, again stresses the wireless data opportunities and the sheer size of its assets across the world as the reasons behind its recommendation.
Chase managing director John Jenson said: "The potential of a successful wireless data execution for Vodafone is hard to estimate: the company could end up being one of the largest ISPs in the world.
"If that were to happen, the share price impact could be equal to that of DoCoMo, whose share price has appreciated 250% since it successfully launched its I-Mode product in the first quarter of 1999."
So the analysts remain united and adamant that the stock will rise. The question is when. Jenson said: "The share price has suffered from a slump in TMT stocks generally. However, I think that the shares should rise following the results announcement on Tuesday, which should show continued strong cashflow globally and when the market realises the impact of data services, and the opportunities of 3G, and the substantial capital [the company will acquire] from the sale of Orange."
Tuesday's results could mean VV Day - Victory for Vodafone Day - for the majority of the City's analysts
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