Broker snap: Jefferies downgrades Vodafone to 'hold'

29th Jun 2012 10:27

Jefferies has downgraded its rating on telecoms giant Vodafone from 'buy' to 'hold' on the back of threats from competitor fightbacks and this company's dependence on Verizon Wireless (VZW).The European smartphone market is not delivering pricing power, according to the broker, which says that customers "are not trading up". "Vodafone continues to gain share but the risk of more concerted fight-backs is increasing."Jefferies thinks that the margin guidance is too optimistic; Vodafone expects EBITDA margins to stabilise by 2014 as commercial costs are reduced."Only on the (low-probability) scenario that EU Mobile returns to structural top-line growth - relieving competitive pressure - would we envisage commercial costs coming down. Competitors have no incentive to adopt commercial policy that sees them leak market share to Vodafone ad infinitum."Meanwhile, the broker said: "Reliance on VZW income distributions being raised to sustain DPS growth post Mar13 is increasing Verizon's leverage over Vodafone, an unhealthy situation in our view."The target price is cut from 195p to 180p.By 10:26, Vodafone was trading 0.44% lower at 180p.BC