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Brokers bullish as Vodafone seeks to settle German cable dispute


Brokers remain almost universally positive for the prospects of Vodafone [LSE:VOD] shares as we move into the New Year. A total of 14 brokers who cover Vodafone stock retain a buy rating at the end of 2020, with only one neutral and one with a sell rating in place.

Vodafone shares hit a short term peak at just over GBX 135 on 10 December, but the stock has since slipped. There has been some short term buying activity at the start of the year, which has helped the share price to break trend. Vodafone had seen some selling going into Christmas, forcing the stock down to 120, but that has the looks of tactical positioning going into the end of the year.

Telecoms sector looks resilient

The telecoms industry is more resilient to the impact from COVID-19 than most other sectors (leisure, aviation, oil & gas and retail) but will still ultimately suffer from three major components to loss in revenue.

The first is simply a reduction in travel and roaming revenues, the second is stressed SME clients and large corporates suspending project spend and the third is the eventual reduction in consumer purchasing power from a prolonged wide and deep recession.

Despite these uncertainties, Vodafone has retained the current year’s dividend at €9c/share although has opted against detailed guidance with the expectation from management that underlying cash generation will remain flat/slight decline of ‘at least’ £5.0bn and EBITDA of €14.4-14.6bn for 2020/21.

At 1H 20/21, group revenue declined by 2.3% as good underlying momentum was offset by the effects of COVID on roaming and visitor revenue. This translated to an EBITDA decline of 1.9% as part of the revenue decline was offset by ongoing cost savings. This looks like a relatively positive outcome against a backdrop of FTSE profit warnings and dividend cuts.

Vodafone seeks to settle with Kabel Deutschland hold outs

Vodafone looks like it might be approaching a resolution to the ongoing Kabel Deutschland saga, in which it has been challenged by a number of hedge funds, among them DE Shaw and Elliott Advisors, who questioned the sum paid for the German group. Vodafone originally forked out €7.7bn for Kabel Deutschland, Germany’s largest cable group, in 2013.

Vodafone is trying to settle the dispute via a tender offer for the rest of the KDG stock, with three hedge funds that control 17% of the company, seemingly ready to drop their legal action. Elliott has also agreed that it will not be taking further action against Vodafone. On completion, this will leave Vodafone with at least 93% of the outstanding share capital of KDG.

Analysts were generally positive on last month’s news and had been expecting a positive settlement, as the offer looked like fair value for hedge funds that wanted to exit the KDG trade, but at an acceptable price for their investors. The resolution should help to eliminate a cloud that was hanging over the company in Q4, on top of the COVID headwinds mentioned above.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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