HSBC cuts Vodafone to 'hold' on competitive pressures
HSBC downgraded Vodafone to ‘hold’ from ‘buy’and cut the price target to 240p from 270p.
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Vodafone Group
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The bank said that throughout last year, the company began to demonstrate its long-held investment thesis that an improving European mobile environment would lead to modest group revenue growth which when coupled with cost control, would deliver faster-paced earnings before interest, taxes, depreciation and amortisation growth.
“Combined with the exceptional capex of Project Spring fading through FY17, the company could once again offer a covered dividend. Mechanically, we continue to believe that this is possible.”
However, it pointed to growing concerns that rising competitive intensity in India, Italy and the UK may undermine the underlying improvements in 2017.
HSBC said competition in India has worsened since the first half results in November 2016, with new entrant Jio extending its free data offer through to the end of March, forcing Vodafone to adjust its pricing in order to remain competitive.
“The success that Jio has had (now 60 million subscribers since September 2016 launch) suggests that it is impossible to rule out a further round of aggressive promotions from 1 April (even if no longer technically ‘free’).
“Similarly, we see the risk of negative sentiment building in both Italy and the UK through the year, with the launch of respectively Iliad’s and Sky’s mobile businesses.”