Lowering Vodafone Fair Value Estimate to GBX 125; Germany and Italy Main Detractors to Performance

We are lowering our Vodafone fair value estimate to GBX 125 from GBX 135, after the company reported weaker-than-expected results in the first half of the fiscal year. Headwinds are mainly coming from Germany and Italy. In Germany, Vodafone has underperformed during the past six months. This is a company-specific problem rather than an overall market deterioration, as Deutsche Telekom and Telefonica O2D reported healthy results a few weeks ago, with organic service revenue growth of 2.7% and 3.7%, respectively. The company attributed the weaker results in Germany to commercial underperformance and some revenue pressures. The Italian business also performed weakly, with EBITDA after leases, or EBITDAaL, declining 6.6% organically in the first half of the year. Telecom Italia also reported strong EBITDAaL declines last week as the Italian market remains highly competitive. We have trimmed our margin and revenue assumptions in Germany and Italy for 2023, resulting in the fair value estimate decline. Our adjusted EBITDAaL forecast for this fiscal year remains in the lower end of management’s guided range, around EUR 15.0 billion.