Headwinds in Germany Offset by Higher Prices in the U.K. for Vodafone in First Fiscal Quarter

No-moat Vodafone's first-quarter trading update came with no big surprises. Germany (30% of sales) was the weakest performer, with a 0.5% organic sales decline due to customer losses caused by changes in the German telecommunications act. According to prior legislation, housing associations could include broadband and TV services as part of their mandatory charges to tenants, with Vodafone being the default service provider in these contracts. The new law does not enforce this anymore, and tenants are now free to choose their telecommunications provider, something that has led to customer losses for Vodafone that we expect to remain during the following quarters. Vodafone lost 64,000 fixed-line subscribers in the quarter compared with a gain of 7,000 one year ago, resulting in a 0.5% decline in service revenue compared with 1.4% growth last year. We are maintaining our GBX 135 fair value estimate.