Vodafone Group PLC

Vodafone Group PLC (LON: VOD) is an 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.

Rationale for Valuation – SELL at GBX 127.20

• Profit Booking: VOD’s stock price has given over 30% return in the six months, and thus, investors can book profit as per their risk-return profile.
• Macroeconomic Uncertainty: As the Federal Meeting has signaled the interest rates hike and monetary policy tightening, it has taken the US Dollar index to a seven-month high. Therefore, the equity market can remain under pressure.
• Technical Indicators: From a technical standpoint, the momentum oscillator 14-day RSI (~70.14) is approaching the overbought zone, while the stock price is hovering close to the upper Bollinger Band.
• Weaker Profitability: In H1 FY22, it reported a net margin and return on equity of 5.7% and 1.8%, reflecting a significantly lower ratio compared to the industry median.

Key Risks

• Inflation and Supply Chain Issues: Tight supplies of semiconductors, global shipping problems, and rising inflation can create short-term uncertainties.
• Restricted Market: The commercial activity is yet to return to a normal level, and thus, Europe mobile contract churn remained battered.

H1 FY22 Trading Update (for the six months ended 30 September 2021, as of 16 November 2021)

 (Source: Company Website)

• Sustainable Growth: Vodafone continued growth across Europe and Africa. Therefore, service revenue grew 2.8% year-on-year in H1 FY22.
• Profitability: Its pre-tax return on capital employed increased by 0.8% year-on-year to 6.3% in H1 FY22.
• Dividend: It recommended an interim dividend of 4.5 euro cents per share, with a record date of 26 November 2021.

One Year Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Bigblu Broadband PLC, BT Group PLC, and Airtel Africa PLC.

*All peers considered are LSE-listed Companies from the Telecommunications sector.

*1.00 Euro = 0.8319773 British Pounds. 

 Conclusion 

Vodafone stock price has given a decent return and given a profit booking opportunity. Moreover, there are concerns related to the margin headwinds, inflationary pressure, monetary policy tightening, and supply chain snags, which can eventually affect the Company’s financials. Therefore, it is prudent to liquidate the position as per the risk-return profile of investors. The stock made a 52-week high and low of GBX 142.74 and GBX 106.30, respectively.

Based on the notional gains, reduced profits, overbought technical indication, and unfavorable valuation conducted above, we have given a “SELL” recommendation on Vodafone Group PLC at the current market price of GBX 127.20 (as of 28 January 2022, at 9:15 AM GMT).

Creo Medical Group PLC

Creo Medical Group PLC (LON: CREO) is an FTSE AIM All-Share index-listed medical device entity focusing on the emerging field of surgical endoscopy.

Investment Rationale – SELL at GBX 123.74

• Continued Losses: Despite the significant jump in revenue, the Group’s operating losses worsened in H1 FY21.
• Macroeconomic Uncertainty: As the Federal Meeting has signaled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.
• Technical Indicators: From a technical standpoint, the MACD line has given a bearish crossover against the signal line and hovering below the centreline.
• Underperformance Against Index: CREO’s stock price has plunged over 37% in the past six months, reflecting a significant underperformance against the FTSE AIM All-Share index.
• Weaker Components: On a forward 12-months basis, the EV/Sales valuation multiple is higher, while the Buyback yield is lower against the median of the Health Care sector.

Key Risks

• History of Operating Losses: The Company is not yet profitable and can face liquidity crunch in absence of substantial capital.
• Omicron Apprehensions: The restrictions on elective surgery had raised the likelihood of the commercial execution risk. Moreover, the increased financial pressure on governments and hospitals caused by the Covid-19 pandemic has exposed CREO to pricing and reimbursement risk.
  

Recent News

Partnership: On 24 January 2022, CREO has signed partnerships regarding the Company's SpydrBlade, Cool Plasma and MicroBlate technologies.

H1 FY21 Financial Highlights (for the six-month period ended 30 June 2021, as on 30 September 2021)

 (Source: Company Website)

• Strong Orders: The Group experienced solid orders for Speedboat Inject across the US and Europe.
• Operational Progress: During H1 FY21, it reported total sales of £12.9 million (H1 FY20: £0.0 million).
• Operating Loss: Its operation loss slightly worsened to £11.4 million in H1 FY21 from £10.6 million in H1 FY20, reflecting the impact of £0.6 million in share-based payments.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Sales Approach (FY21) (Illustrative)

Conclusion

CREO is also trading as a penny stock with a history of operating losses. Moreover, its cash balance and net assets were significantly decreased in H1 FY21 year-on-year. Therefore, it is prudent to liquidate the position as per the risk-return profile of investors. The stock made a 52-week high and low of GBX 236.00 and GBX 119.00, respectively.

Based on the weak fundamentals, continued losses, significant downtrend, and unfavorable valuation conducted above, we have given a “SELL” recommendation on Creo Medical Group PLC at the current market price of GBX 123.74 (as of 28 January 2022, at 8:05 AM GMT).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Disclaimer

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