Vodafone: Remains Active in Its Mergers and Acquisitions Strategy; Maintaining Fair Value Estimate

Vodafone’s group service revenue, excluding Turkey, grew by 2.8% in third-quarter fiscal 2024 as its revenue in Germany slowly improved. Despite Vodafone facing challenges in Germany, where it is steadily losing share to Deutsche Telekom, and in Italy, where the market remains highly competitive, we believe management is making some right decisions. It is trying to merge its U.K. business with CK Hutchison and divest from Spain. We believe the firm will continue to have a hard time in Italy after rejecting Iliad’s merger offer, which valued Vodafone Italy at EUR 10.45 billion. According to Reuters, Vodafone could now pursue a deal with Swisscom’s Italian business Fastweb. We believe Fastweb would have a lower potential for synergies with Vodafone though, given its smaller size compared with Iliad. We maintain our GBX 125 fair value estimate and see the shares as undervalued.