Vodafone Plc. is a avoid at the current price. The stock finished trading on the London stock exchange on 19th July at 175.0p a share, down by 1.27%. In terms of technical analysis or charting, the stock has been nonstop making lower highs and lower lows and also has been trading on the downward trend line which further confirms the bearish sentiment of the telecom major. Currently, the stock has been trading below its 20 day moving average (DMA), 50 DMA and 100 DMA of 183.7p, 189.2p and 196.6 p respectively. Considering the free-fall of the stock, it doesn’t look like that stock will be taking support anytime soon in the coming days and we expect the free-fall to continue. Hence, traders or investors would be strictly advice to stay away from the stock as consolidation doesn’t look like soon.
Let’s throw some light on the latest financial results of the company. The company’s operating profit was up by 15% in FY’18 at €4.3 billion and the revenue was down by 2% at €46.6 billion. However the revenue fell mainly because of the deconsolidation of Vodafone Netherlands and Forex movements. However strong growth in adjusted EBITDA was witnessed, up by 14% and had even surpassed the management guidance. Free cash flow pre spectrum also improved by 34% and had met the management guidance as well. As per the FY’19 guidance, the management forecasts organic adjusted EBITDA growth (excluding settlements and UK handset financing) of 1% - 5% and free cash flow pre-spectrum of at least €5.2 billion (including €0.2 billion of cash investment in the Gigabit Plan).
The CEO of the company, Vittorio Colao commented on the full year results, “This was a year of significant operational and strategic achievement and strong financial performance. Our sustained investment in network quality supported robust commercial momentum: we added a record number of fixed NGN and converged customers in Q4, mobile data usage continues to grow strongly and we grew both revenues and margins in Enterprise, despite roaming headwinds, and continued to reduce operating costs. As a result, underlying EBITDA grew 7.9%. We have made good progress in securing approvals for the merger with Idea Cellular in India – which is expected to close imminently – and appointed the new management team, who will focus immediately on capturing the sizeable cost synergies. In addition, we agreed the merger of Indus Towers and Bharti Infratel, allowing Vodafone to own a significant cocontrolling stake in India’s largest listed tower company. And we announced last week the acquisition of Liberty Global’s cable assets in Germany and Central and Eastern Europe, transforming the Group into Europe’s leading next generation network owner and a truly converged challenger to dominant incumbents. We expect to sustain our profit growth in the year ahead, despite the arrival of a new entrant in Italy and competitive pressure in Spain, supported by the third year in a row of lower net operating costs. Our primary focus continues to be to accelerate the ‘Digital Vodafone’ programme, which we believe is a unique opportunity to enhance our customers’ experience, generate incremental value and improve cost efficiency “.
Based on the above discussion, the management guidance and our own estimates, we estimate Vodafone PLC 2019 revenue will be £47.502 billion (£46.571 billion for fiscal 2018) and the operating profit will be £4.275 billion (2018 operating profit was £3.725 billion). We have assumed a margin for earnings before interest and taxes (EBIT) of 9%.
From 2013 through 2018, Vodafone PLC has traded at an average enterprise value by sales multiple of 1.95x. That assumes a multiple of 1.96x to calculate the target price. Based on this ratio and on estimated 2019 sales, the stock price target is 182 pence. Therefore, we set avoid recommendation on Vodafone Plc. and target price is set at 182p.