Vodafone Earnings: As TV Subscriber Losses in Germany Intensify, Fair Value Estimate Cut to GBX 94

We reduce our Vodafone fair value estimate to GBX 94 from GBX 100, as performance in the German business, Vodafone's largest, continues to disappoint. German service revenue deteriorated significantly in the second quarter, down 6.2% year over year compared with the more modest 1.5% decline in the first quarter. This has translated into a 9.3% adjusted EBITDAaL decline in the first half of the year, triggering a share price decline of 6%, which we see as justified. Germany lost a staggering 2.2 million TV customers this quarter (compared with 655,000 lost last quarter), as changes in German housing regulation now allow most tenants to freely choose their TV provider and many subscribers are leaving Vodafone. Long term, it will be tough for no-moat Vodafone to recover these subscribers, and even if it does, it would require significant price promotions and discounting, meaning lower average revenue per user. We have reduced our short- and medium-term forecasts for Germany to account for Vodafone's weak performance.