On Oct 9, 2013 we maintained our Neutral recommendation on
Vodafone Group Plc.
). Vodafone is enjoying significant market traction in emerging
markets and is expected to generate higher returns given its
lower infrastructural costs. Gradual shift toward more data
centric services provides additional revenue opportunities for
the company. However, deteriorating service revenues particularly
in the European nations remain a major concern for Vodafone. The
company currently carries a Zacks Rank #2 (Buy).
Strong adoption of data services and migration to smartphones
continue to remain the growth drivers across most of Vodafone's
market. Expansion in emerging markets including Eastern Europe,
India and Africa as well as growth in enterprise market and in
machine-to-machine business also bode well.
Vodafone is way ahead of its competitors in 3G upgrade and
intends to upgrade 3G networks to 43.2 Mbps by end of fiscal
2014. Furthermore, the company is accelerating its 4G expansion
and targets to cover five European markets in fiscal 2014. This
network upgrades and rollout will complement the significant
growth in data services.
The company is also considering a strategic option to spread
its business. It is in talks to acquire Kabel Deutschland and
expects to complete the buyout by the end of 2013. In Sep 2013,
Vodafone reached an agreement with Verizon to sell its 45%
interest in Verizon Wireless for $130 billion and struck a
wholesale agreement with Deutsche Telecom for offering high-speed
fixed-line broadband and Internet protocol-based TV services
Nevertheless, saturation in the European wireless markets,
continues to affect the company's performance and is likely to
continue for the next couple of years given the high subscriber
penetration rates. Weak economic conditions have forced consumers
to switch to cheaper alternative services offered by competitors.
This is affecting a premier service provider like Vodafone.
Further, Vodafone remains under pressure in its home turf post
combination of the Deutsche Telekom and France Telecom U.K.
units. Moreover, Vodafone has to face integration risks and
unpredictable political, regulatory and legal issues owing to its
acquisition spree. These risk factors compel us to remain
sidelined on Vodafone.
Among other stocks,
TIM Participacoes S.A.
BT Group plc
) look attractive. All the stocks carry a Zacks Rank #2
BT GRP PLC-ADR (BT): Free Stock Analysis
TELEFONICA S.A. (TEF): Free Stock Analysis
TIM PARTICP-ADR (TSU): Free Stock Analysis
VODAFONE GP PLC (VOD): Free Stock Analysis
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