Vodafone Group PLC – Reshaping business by delivering on strategic priorities.

Vodafone Group PLC (LON: VOD) is a FTSE 100 listed Telecommunication Company, providing a range of services including mobile communication, fixed communication, unified communication, internet of things (IoT), cloud hosting and security & carrier services.

On 3 February 2021, VOD expects to release its Q3 FY21 trading update.

Investment Rationale – Hold at GBX 130.00

• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Cash Flow and Price/Earnings multiples are currently lower than the Telecommunications Services industry.
• From a technical standpoint, shares are trading well above the short-term support level of 20-day (126.85) simple moving average price, which reflects an uptrend in the stock.
• Pre-spectrum and restructuring, the free cash flow for FY21 is expected to be over €5 billion.
• The Group continued to witness strong commercial momentum across the business, while it has delivered significant cost savings.

Key Risks

• The Company faces intense pressure regarding pricing and market share.
• The Covid-19 disruption has caused significant operational and financial risks.
• A slowdown in the growth of telecommunications and mobile money services could adversely affect the demand for communication sites and tower space.

Recent News

21 December 2020: Vodafone has completed the combination of Wind Hellas Telecommunications SA and Vodafone Greece. The combined entity would be regarded as the largest tower infrastructure company in Greece.

Half-yearly results for the six months ended 30 September 2020 (as on 16 November 2020)

(Source: Company Website)

• The Company delivered a resilient financial performance during H1 FY21 by deepening customer engagement.
• It has also introduced 5G in nearly 127 cities across 9 of our European markets.
• It has reaffirmed FY21 free cash flow guidance, while the adjusted EBITDA is expected to be between €14.4 - €14.6 billion.
• VOD has also declared an interim dividend of 4.50 eurocent.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The H1 FY21 performance demonstrated resilience in its operating model and thus, the performance was in line with the management expectations. For FY21, the adjusted EBITDA is anticipated to be between €14.4 - 14.6 billion, while the free cash flow is projected to be at least €5 billion. The interim dividend of 4.50 eurocents, reflects confidence in its outlook. The Group is targeting both sustainable growth and attractive returns by ongoing business transformation. Stock 52-week High was GBX 158.50 and Low of GBX 87.11, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Hold” stance on Vodafone Group at the current market price of GBX 130.00 (as on 8 January 2021, before the market close at 9.25 AM GMT), while we look forward to reviewing the upcoming catalysts.

BT Group PLC – Resilient operational performance amid exceptional circumstances.

BT Group PLC is a FTSE 100 Company, which provides communication and connectivity services. It provides services related to broadband, fixed-voice, mobile and TV to the consumers in the United Kingdom.

On 4 February 2021, BT Group expects to release Q3 FY21 results.

Investment Rationale – Hold at GBX 143.59

• From a technical standpoint, 20-day SMA (136.26) is supporting the upside potential.
• During the past four years (FY16 to FY20), revenue and gross profit grew at a CAGR of ~4.19% and 5.21%, respectively.
• In term of valuation metrics, EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow are lower as compared to the Telecommunications Services industry.
• BT is on track to deliver £352 million in cost savings in H1 FY21.
• Resilient EBITDA value shall reinstate the dividend next year.

Risk Assessments

• The BT Group does not intend to resume dividend in H1 FY21, while the Company reported a decline in profitability.
• Given the uncertainties caused by Covid-19 pandemic, the Group is unable to provide clear guidance.
• The performance can be impacted by unfavourable exchange rates and interest rate movements as well.

Recent News

10 December 2020: BT and TTM decided to dispose of two selected BT units in Italy. The transaction is expected to complete by the end of Q1 FY21.

Half-yearly results for the half year to 30 September 2020 (as on 29 October 2020)

 (Source: Company Website)

• Despite the ongoing impact of Covid-19, resilience operating performance was delivered by BT during H1 FY21.
• During H1 FY21, revenue declined 8% year-on-year, while the profit before tax was down by 20%, due to reduced EBITDA,
• The Company has introduced 5G to over 1 million customer base and now it is live in 112 towns and cities.
• The modernisation plan is set to deliver £352 million of gross annualised savings at the cost of £163 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

BT’s results were in line with management expectations as the customer demand during the pandemic was encouraging. The Group has invested in delivering modernisation programme, which shall generate substantial cost savings. The growth in new services and products reflects the future potential for revenue and profitability. The Group has a long-term transformational place in place to simplify systems and processes, which shall bring efficiency in future and thus, improve margins. Stock 52-week High was GBX 198.62 and Low of GBX 94.68, respectively.

Considering the recent developments and valuation computed above, we have given a “Hold” recommendation on BT Group PLC at the current market price of GBX 143.59 (as on 8 January 2021, before the market close at 9.30 AM GMT), while we look forward to reviewing the growth in EBITDA and dividend resumption.  

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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