Broker snap: Vodafone priced beyond perfection

2nd Feb 2011 12:24

RBS expects steady revenue trends in the third quarter for mobile telecoms giant Vodafone, but with shares trading at a 20% premium to its large-cap peers, the broker says the group appears priced more like a growth stock.Vodafone will release its third quarter interims on Thursday, in which RBS expects to see Spain and Italy continue to register negative organic service revenue growth for the second quarter in a row, at -7.2% and -1.2% respectively.The Indian market, however, is forecast to see 15.6% revenue growth in the three month period (from 15.7% in the preceding quarter). According to an Indian regulator, Vodafone added 2.5m subscribers in October and 3.1m in November. On this run rate, the broker estimates that the group will meet its forecast of 8.3m net adds for the third quarter."We believe Vodafone is still priced beyond perfection," says RBS. "[The group's] 2011 price-to-earnings ratio of 13.2 gives it full credit for its share of Verizon Wireless (VZW) earnings [30% of Vodafone's value] and is at a premium of about 24% to the sector."Vodafone is given a 'sell' rating and target price of 140p.