Analysts Bullish on Vodafone
24/7/2000 6:25 by Annemarie Quill
Telecoms Correspondent
Last week, Vodafone's (VOD:LSE) (Board) share price finally broke through the crucial 300p mark. This move follows months of hovering around the 280-290p level following the company's completion of its bid for Mannesmann.
But will it find enough support to build on this level?
Retail investors may be sceptical after the stock's recent performance, however City analysts are more confident. Towards the end of last week several investment banks reiterated their buy notes and year-end price targets of between 400-600p.
On Friday, Warburg Dillon Read reiterated Vodafone as a "strong buy" and reconfirmed its year end price target of 530p. The bank said this target is justified mainly by explosive subscriber growth, coupled with its view that growth in data services will continue to be strong, and recognition of substantial growth of the subscriber base in Germany through Vodafone's subsidiary D2. Warburg notes that its penetration of the German market is 24-26%, against the 16% penetration previously forecast.
Warburg also reconfirms its EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) estimate for the year end March 2001 to be £5.7 billion. Vodafone's actual EBITDA for March 2000 is £4 billion, against Warburg's estimate of £4.9 billion.
Investec Henderson Crosthwaite has also recently reconfimed Vodafone as a 'strong buy' and is sticking to its 400p year-end target. Investec echoes Warburg's confidence about significant growth in subsidiary markets particularly in Germany and Italy.
Christian Maher of Investec, says that earnings should be boosted by strong growth in data services. "Vodafone's spread of assets will be a significant advantage in the move to data over mobile," says Maher. "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."
Maher's forecast EBITDA for this year is conservative at just £2.6 billion. His forecast for March 2001, however, more than doubles doubles to £5.3 billion.
Chase Manhattan is also sticking to its year end price target of 440p, based on expected growth from wireless data opportunities and the combined revenues of Vodafone's subsidiaries across the world. But like Morgan Stanley, Chase remains extremely bullish on EBITDA forecasts, despite its 2000 estimate being way off the mark at £5.3 billion and for 2001 Chase's prediction shoots up to £8.2 billion.
Chase analyst John Jenson defends these strong targets based on the sheer size of the company. "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."
While current house restrictions prevent Morgan Stanley's Franos Hira from reconfirming his firm's estimates, back in February Hira recommended a year-end price target of 400p. He based his target on Vodafone's strong assets globally and increasing revenue in the future generated by data services.
Back in February, Morgan Stanley were predicting 26% annual growth in EBITDA over the next three years, with strong cashflow coming from the disposal of Orange, and the potential of WAP. But Morgan's EBITDA forecast for March 2000 turned out to wildly optimistic at £5.9 billion. Forecast EBIDTA for 2001 is a bumper £7.9 billion.
These reiterations may help convince investors who have been sceptical of analysts' buynotes for the past few months. Many investors doubt the share price will ever reach loftier levels, feeling that the extortionate price that Vodafone paid for a third generation mobile licence in the UK (and the £20 billion it may have to spend on similar licenses across Europe), coupled with concerns about its ability to smoothly integrate Mannesmann, has propelled debt rating agencies to downgrade Vodafone.
However, this negative view seems to be changing. Analysts no longer believe that future UMTS auctions throughout Europe will cost the operators as much as it did in the UK, as companies are clubbing together to bid for licences to keep the prices low. This has already been seen in the Dutch auction, where various alliances between the different bidders removed the element of fierce competition that pushed the price up in the UK. Analysts expect similar scenarios in future auctions, including the forthcoming German auction.
Added to this new confidence are Vodafone's recently released strong subscriber figures for the second quarter. The company reported 572,000 new UK subscribers, which was broadly in line with analysts' expectations. Vodafone also added that globally it had added 6.6 million new customers, with its global subscriber base now amounting to 59 million.
With most Vodafone analysts being more vocal in their defence of their bullish predictions, investors may also start to believe that Vodafone is finally heading for 400p. |
