We maintain our Neutral recommendation on
Vodafone Group PLC
(
VOD
). Despite the strong growth prospects of Vodafone - the world's
largest revenue generating wireless communications operator and
the second largest carrier after
China Mobile Limited
(
CHL
) based on subscriptions - we are concerned about a decline in
service revenue and subscriber count, particularly in Italy and
Spain. This is due to economic weakness, regulatory pressure and
stiff competition.
Additionally, reductions in mobile termination rates and
roaming prices remained detrimental to this Newbury, United
Kingdom based company. The impacts were evident in in the first
half of 2012 when the company registered modest growth in terms
of earnings, and a substantial drop in revenues.
However, Vodafone's strong subscriber and revenue growth and
lower infrastructural costs in emerging markets can partially
offset challenging market conditions in Europe and provide a high
profit margin.
Further, the company is increasingly making efforts to shift
towards more data centric services in the emerging markets as the
level of data services there remain considerably low. This should
provide opportunities for deeper penetration.
Vodafone is continuously gaining share in the majority of its
markets due to the strong adoption of data services and migration
to smartphones. Vodafone's future growth hinges on the increase
in mobile data services, implementation of converged fixed and
mobile services (Vodafone One Net), growth in new areas including
machine-to-machine, near-field communications and mobile
financial services, as well as maintenance of liquid investment
in quality networks.
Additionally, the company is strengthening its foothold in the
enterprise market. On November 30, 2012, the company integrated
its enterprise business to create a dedicated enterprise
operational structure and formed a new business segment -
Vodafone Group Enterprise. The new segment will be effective
starting on January 1, 2013, following the integration process of
Cable & Wireless Worldwide, which was acquired in July
2012.
We believe the restructuring of enterprise business and
integration of Cable & Wireless Worldwide, which specializes
in managed voice, data and IP-based services dedicated to serve
corporate, governments and carriers, will enable the company to
enhance its product portfolio and tap opportunities in large and
medium-sized businesses.
For the short term (1-3 months), Vodafone has a Zacks #2 Rank,
implying a Buy rating.
CHINA MOBLE-ADR (CHL): Free Stock Analysis
Report
VODAFONE GP PLC (VOD): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research