Macquarie upgrades Vodafone as Europe turns a corner

Macquarie upgraded Vodafone to ‘outperform’ from ‘neutral’ and reiterated its 235p price target, saying the company was turning a corner.

“At last the operational outlook for Vodafone is constructive on a 12-18 months view. We believe the positive combination of European improving service revenue trends, growth returning to Europe, the end of Project Spring and a cost focus are likely to drive the share price.”

Macquarie said that in a continued low interest rate environment and after the FX turmoil of the third quarter, the outlook is more constructive.

The Australian bank said its target price reflects its outlook that Vodafone will be delivering 3.3% revenue growth in full-year 2015/16.

In the long term, Macquarie reckons capital intensity will be maintained at higher levels in order to sustain revenue growth, but said this will necessitate a change in the dividend policy.

Rather than the current 5.5% yield and 2% growth, it expects a move to 8p in full-year 2016/17 with a 3.9% yield, but with 5% growth thereafter.

At 1000 BST, Vodafone shares up 0.4% at 210.15p.