Portfolio streamlining to better position the business was one of two key factors that Vodafone should address to push the telco share into recovery, Credit Suisse said in a note.
Whilst retaining an ‘outperform’ rating for Vodafone the Swiss bank suggested it is presently too thinly spread.
“Vodafone Europe earnings (EBITDA) margin is below incumbent peers’ domestic businesses (34% vs ~39% respectively), as local scale is arguably more important than cross-border scale,” analyst Jakob Bluestone said in a note.
“We believe refocusing the portfolio to focus on businesses with strong operating free cash flow margin (e.g. Germany, Vodacom, Italy) or room to grow into strong operating free cash flow generation (in the UK) could allow sharper operational focus.”
“This could ultimately deliver the balance sheet to the point where Vodafone can buy back its own shares.”
Bluestone reckons buy-backs would add value for shareholders but noted that Vodafone has too much leverage do go ahead with a programme at present.
An organic rebound in revenue and earnings (EBITDA), following capex investment, was the other factor highlighted by Credit Suisse.
“The precise revenue impact still remains to be seen, but we expect growth to accelerate as of first quarter of the 2022 financial year as the COVID drags fall away and in the second half of 2022 Southern Europe starts to benefit from EU recovery funds,” the analyst added.
The Credit Suisse ‘outperform’ rating comes with a 150p price target which suggests around 16% to the current price of 128.78p.