Market Analysis: Vodafone & Burberry

Vodafone: Modest improvements in service revenue in core markets but Net additions remain subdued; Decrease in group revenue show that further OPEX reduction is necessary. Burberry: Sales growth in China has slowed considerably due to weak customer confidence; Bags and accessories is crucial to future growth butcontinue to underperform

In the telecommunications space, Albie Amankona, Analyst at Third Bridge comments on Vodafone, informed by insights from industry experts:

"Vodafone has noted modest improvements in service revenue in core markets such as Germany and the UK, while facing erosion in Southern European markets like Spain and Italy. The overall European service revenue growth of 3.8% aligns with estimates from our experts, who suggest that sustainable low to mid-single-digit revenue growth is feasible.

"With 44k net additions in Q2 FY24, net adds continue to remain subdued, rebounding from losses in Q1 FY24 in line with overall European B2C Telecoms trends. Legacy Telcos are competing for new subscribers in the youth market against challengers such as Iliad and Digi.

"Our experts highlight that the most significant opportunity for future revenue growth lies in the B2B market, which has yet to reach its full potential. The UK saw only a 3.2% B2B service revenue growth, while Germany experienced a mere 1% growth.

"Despite modest increases in B2B and B2C service revenue, they were insufficient to restore the group to profitability, resulting in a decrease in group revenue for H1 of -4.3%. This indicates that further operational expenditure (OPEX) management is necessary. Having completed 30% of their targeted savings program by FY26 and having implemented the easiest OPEX reduction methods first, it could imply that the OPEX management program lacks ambition. This echoes the skepticism of our experts, who doubt whether the planned OPEX reduction program will yield the required results.

All eyes will be on the group's departure from the challenging Spanish market and the merger with CK Hutchison's Three UK in the UK market to see if these actions deliver increased revenue, profitability, and OPEX reductions."

Yanmei Tang, Analyst at Third Bridge comments on Burberry

“Although Burberry’s overall momentum is impressive their sales growth in China has slowed considerably, reflecting broader trends in the global luxury industry. Consumer confidence in China remains subdued, and this shows up in sales performance figures from shopping festivals like Qixi and Singles Day, which fell below expectations.”

“Our experts say Burberry might be more adversely affected in China than several other luxury brands because of its positioning as a second-tier fashion luxury brand, targeting a relatively mass audience.

“The bags and accessories category is crucial to Burberry's future growth and the brand’s ability to attract new consumers. Leveraging Daniel Lee's expertise in bag design could be instrumental, with all eyes on how Burberry will integrate his ideas with their British brand heritage.

“While Burberry remains strong in the ready-to-wear category, particularly in trench coats and winter wear, our experts note a lack of significant following their fall/winter collection. The emergence of high-potential "It bags'' from this collection is yet to be seen.”