Broker snap: Goldman Sachs says Vodafone is a potential take-over target

10th Feb 2014 11:11

Analysts at Goldman Sachs substituted their 'not rated' designation on shares of Vodafone with a recommendation to 'buy' due to the current undervaluation of the shares and scope for the telecommunications carrier to be taken over. In the broker's opinion investors are failing to recognise the opportunities for the firm to improve its structural position through accelerated investment and fixed line acquisitions. Furthermore, the global telecommunications provider is one of the few "substantial" assets available for purchase to a rival seeking to build global scale - with the added benefit of £106bn of long-lasting agreed tax losses. Furthermore, Goldman has identified $2-7bn of potential annual synergies should Vodafone combine with a leading global operator.Although they think Vodafone will have a tough time of growing profits as a wholesaler or by rolling its own fibre they still forecast a 29% rate of growth in earnings per share to 2018, thanks to a sustained expansion in emerging markets, synergies from acquisitions and cost reductions. The expected macroeconomic recovery in Europe will not bring relief as fixed-line brands attack the mobile market, Goldman added. Compensating for that, consolidation in the sector could accelerate the carrier´s growth, they said.Goldman Sachs set a 275p 12-month target price for the shares. That was the result of applying a 15% EV/NOPAT premium versus incumbents (220p per share) together with a 50% M&A weighting at 7.5 times EV/EBITDA (330p per share).AB