Vodafone’s Financial Strain and Competitive Pressures Lead to Hold Rating Despite Mid-term Recovery Prospects

In a report released today, David Wright from Bank of America Securities downgraded Vodafone (VOD – Research Report) to a Hold, with a price target of p91.00.

David Wright has given his Hold rating due to a combination of factors impacting Vodafone’s financial outlook. The recent UK deal, while strategically beneficial, is expected to weigh heavily on Vodafone’s financials in the near term, leading to a significant cash flow dilution of 35% for at least two years. This results in a cash yield that is lower than the sector average, and a tight dividend cover that leaves little room for further earnings slippage.
Additionally, Vodafone is facing competitive pressures in Germany, where it must lower prices to remain competitive, impacting its EBITDA negatively. Despite these challenges, there is a potential for mid-term recovery with promising dividend growth prospects from FY27 onwards. However, the immediate financial strain and competitive environment have led to a more cautious outlook, prompting the downgrade to a Hold rating.

In another report released on March 7, J.P. Morgan also maintained a Hold rating on the stock with a £0.72 price target.