LONDON (ShareCast) - UBS (NYSEArca: DJCI - news) has reiterated its 'buy' recommendation for telecoms firm Vodafone (LSE: VOD.L - news) in spite of some disappointing second-quarter trends in Europe (Chicago Options: ^REURUSD - news) , as it remains upbeat about the Verizon Wireless (VZW) contribution to the group.
The broker said that consolidated trends at Vodafone were worse than expected in the second quarter, with organic service revenue down 1.4%, compared with 0.6% growth in the first three months of the year and below the 0.7% decline expected by the consensus. Cost control was also weak, UBS said.
However, it said: "But again cuts to European forecasts are offset by a rise in the associate contribution of VZW. Including the US, VOD top line and cash flow grow. The VZW dividend is significant in our view, we believe that payments may now come more often and prove larger than expected; VZW has shown it will pay out excess cash".
"[...] We keep income dividend forecasts, but see a positive scenario where dividends could prove more frequent and larger than consensus forecasts."
As for trading in Europe, the broker highlighted that both Germany and the UK disappointed against admittedly high expectations, while South Europe had failed to live up to low ones.
"We are concerned that voice prices and SMS in main markets appear under great pressure. Meanwhile cost control outside Spain appears limited, with estimated cost, pre-MTR (SNP: ^MTRY - news) [mobile termination rate cuts] up 2-9% in UK, Italy and Germany. Given the weak top line this is not sustainable."
The broker has reduced its target price for the shares lightly from 205p to 200p, but retained its positive stance on the stock, saying that the "divi could provide excitement".