Berenberg downgrades Vodafone to 'hold'

It noted that Vodafone’s share price is up 12% year-to-date, making it one of the better performing stocks in the Stoxx 600 telecoms index.

The bank said it’s always easiest to justify a buy recommendation with forecasts above consensus.

"We are not in that position. Looking ahead to the 2022/23 guidance that will be issued alongside the Q4 results, we have concerns that consensus may not be taking sufficient account of cost inflation, Turkish lira weakness, and the extent to which 2021/22 EBITDAaL has benefited from an Italian one-off legal settlement.

"We note that only five of Vodafone’s operations have inflation-linked pricing mechanisms in their consumer customer contracts (the UK, Ireland, Portugal, Hungary and Albania)."

Berenberg pointed out that ever since Vodafone overtly stated its ambition to pursue in-market European consolidation at the H1 results in November, antitrust approval uncertainty has been the main topic of investor debate.

"This is understandable, given that it was the blocking of deals in Denmark and the UK, in 2015 and 2016 respectively, that previously ended the theme of in-market consolidation.

"However, we believe that Iliad’s rejected €11.25bn offer for Vodafone Italy in February 2022, and Orange and MásMóvil’s Spanish merger announcement in March 2022, both highlight that counterparty negotiation is also an important hurdle.

"We believe that Vodafone’s public statement of its ambitions has raised expectations among investors, which may also weaken its negotiating position and invite opportunism from potential partners."

At 1055 BST, the shares were down 2.1% at 123.40p.