Vodafone makes brokers bullish

International stockbrokers see growth potential for shares in Vodafone, the group which plans to acquire Eircom's mobile subsidiary Eircell next March.

This could be good news for about 480,000 Eircom shareholders, who will acquire stock in the company when the €4.5 billion (£3.5 billion) deal is concluded.

In their latest research note, London-based analysts at Salomon Smith Barney rated the stock as a "natural target" for growth money. It said the stock would outperform its sector but was a high-risk investment, given weakness in the industry.

At Goldman Sachs in London, telecoms analyst Mr Simon Weeden described Vodafone as a "safe haven" because it consistently outperformed the sector.

As a global player, its strength would lie in its ability to roll out next-generation data products sooner than its competitors, he said.

A potential weakness, however, was the sheer size of Vodafone's business, which has in excess of 65 million customers.

The company's acquisition phase was probably over, Mr Weeden added. He was positive on the Eircell acquisition, stating Vodafone had paid a fair price for a market leader.

Salomon's said Vodafone was a defensive stock with upside potential. While the firm has put a target price of $49 (€53) on the stock worth $34.50 on the New York exchange yesterday, it warned such a rating did not imply early upside.

On the downside, Salomon's cited pressure on revenues throughout the mobile sector due to rising competition. Additional pressure on margins would arise due to acquisition and capital costs, it added.

Still, the company said Vodafone was in a "uniquely defensive" position.

On the plus side, it said Vodafone would roll out the next generation of mobile data products sooner than its competitors. Citing Vodafone's positive first-half results, Salomon's said: "Although the newsflow does not by any means answer definitively the major issues for the sector, we think Vodafone is our best long idea right now.

"In a market where large-cap, well-run, telecom stocks are scarce, we think Vodafone is a natural target for growth money in this bear market . . . Vodafone appears to offer value."