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Vodafone, Deutsche Telekom Cash Swells: EMEA Earnings Week Ahead

(Bloomberg) -- Cost and capital spending cuts will determine the pace of earnings and cash flow growth for BT Group Plc, Deutsche Telekom AG and Vodafone Plc, reporting this week.

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Most of Europe’s biggest carriers have set an “optimistic” baseline for sales, profit and cash-flow growth in 2024, according to Bloomberg Intelligence’s Matthew Bloxham.

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Deutsche Telekom’s free-cash-flow ramp-up is set to be among the strongest and may bolster shareholder returns. Vodafone’s exit from struggling operations in Italy and Spain puts it on a healthier footing and adds about €12 billion ($12.9 billion) in cash, €4 billion of which is earmarked for buybacks.

Meanwhile, BT — on the cusp of a turnaround — needs to convince shareholders of the merits of expanding mobile operator EE’s offerings into consumer electronics, gaming and home security, Bloxham said.

British trenchcoat maker Burberry Group Plc, still reeling from a profit warning in January, will have to show it’s making headway with its brand revival. Luxury peer Richemont — also due — has fared better this year, with shares among the biggest sector gainers.

Flutter Entertainment Plc is taking its primary listing off the London Stock Exchange in favor of the US, a growing market for Europe’s betting companies as they contend with more stringent regulation at home.

Lender Commerzbank AG and drugmaker Bayer AG round off the reporting season in Germany.

Highlights to look out for:

Monday: Vodacom Group Ltd. (VOD SJ), Africa’s largest wireless carrier, declared a full-year dividend that missed estimates even as revenue and operating profit grew by more than 20%.

Tuesday: Parent Vodafone’s (VOD LN) accelerating business revenue, powered by robust cloud and Internet of Things demand, should be a bright spot in its report. A slow turnaround in its largest market, Germany, likely held back overall growth, said BI’s Erhan Gurses. The planned merger with the UK unit of CK Hutchison Holdings Ltd.’s Three is still up in the air as the companies try to appease regulators.

  • Bayer’s (BAYN GY) sales likely sagged in the first quarter as crop prices fell and the pharmaceuticals business encountered generic competition and price pressure in China. With headwinds likely to persist, costs are increasingly critical to margins and growth, BI said. Consensus for 2024 puts sales and margins at the bottom of or below the company’s guidance. A US appeals court overturning a $185 million jury verdict earlier in May gave the stock a temporary reprieve, but this year’s 14% share price decline still makes it one of the DAX Index’s biggest laggards this year.

  • Flutter’s (FLTR LN) revenue probably jumped 23% in the first quarter, with constant currency growth in the US seen up 43%, consensus shows. Expect more on its strategy for the US at a capital markets day in New York in May.

Wednesday: Burberry’s (BRBY LN) outlook is becoming increasingly uncertain as turnaround efforts coincide with slowing luxury demand. Its fourth quarter was probably the year’s worst, with same-store sales likely dragged down by softer demand in China.

  • Commerzbank (CBK GY) could well exceed consensus for first-quarter net interest income of €2.06 billion, given its particular sensitivity to a higher-for-longer rates scenario, said BI’s Philip Richards. But it may be vulnerable on the fee income side and loan losses may come in higher than expected. Operating costs may also inch up.

Thursday: Price increases put BT (BT/A LN) on track to return to annual revenue growth for the year ended March 31 after six years of declines. The business-facing unit continues to struggle amid high input costs and broadband line losses. New CEO Allison Kirkby’s presence on the board since 2019 suggests any changes in priorities “may be tactical rather than strategic,” BI’s Matthew Bloxham said.

  • Deutsche Telekom (DTE GY), facing lofty wage demands from unions in Germany, should be able to absorb large pay increases without endangering its Ebitda-aL goals, according to Morgan Stanley. Good top-line growth, a staggering of any wage increases and diligence on the cost side should stand in its stead, said UBS. Clarity on the German regulator’s proposal to extend spectrum rights for another five years would be welcome. More visibility on Germany’s plans for its stakeholding would also remove overhang on the stock, UBS analysts said.

Friday: Growth at Richemont’s (CFR SW) Jewellery Maisons unit should help it meet full-year guidance, although the watchmakers business probably saw declines. Tougher year-on-year comparisons lie ahead in the first half of fiscal 2025, BI said. The recent acquisition of Milan-based luxury jeweler Vhernier adds “modern and sleek shapes” to Cartier, Van Cleef & Arpels and Buccellati, BI analyst Deborah Aitken said.

--With assistance from Bella Genga, Laura Malsch, Laura Alviž, Alexey Anishchuk, Paula Doenecke, Rene Vollgraaff and Charles Capel.

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