Shares in Vodafone slid by 6 per cent yesterday after the company's broker cut its recommendation on the stock to "hold" from a "strong buy".
Investment bank UBS Warburg, which is one of Vodafone's house brokers, also cut its price target on the shares to 100 pence sterling from 140 pence.
News of the downgrade hit the shares, which closed at 92.5p, a loss of six pence on the day.
The UBS research note said that competition was increasing for mobile operators as quality subscriber growth slowed and revenue growth increasingly came from market share gains.
It also said that a new approach to analysing cellular markets, based on a model of customer investment costs, could support the view that there may be aggressive customer investment ahead, making margins at Vodafone more volatile than UBS had previously expected.
Vodafone has around 450,000 Irish shareholders who received the stock when Eircom's mobile phone subsidiary, Eircell, was sold to the British mobile phone giant last year. In terms of their original investment, the value to Eircom shareholders of the Vodafone shares was €4.66, leaving them nursing losses of around 68 per cent at yesterday's closing price.
Analysts do not hold out much hope of them recouping those losses in the foreseeable future.
Mr Pat Duggan, telecoms analyst with Dolmen Butler Briscoe, said, while the Warburg report appeared to err on the side of caution, the shares were not likely to make much progress in the short-term. "There is not huge upside in it," he said. "The whole telecom sector is still blackened and the catalyst to lift it up is not there yet."
However, Irish brokers are generally not quite as negative as Warburg. NCB Stockbrokers, which tracks the stock as part of the European Securities Network, has a 12-month price target of 128 pence sterling.
"Vodafone's growth is solid thanks to the group's presence in the US and Japan," said analyst Ms Tricia McEvoy. She also believes the group is well armed to compete in the increasingly aggressive European market.
Meanwhile, there was further bad news for the shares yesterday when Vodafone chief executive Sir Christopher Gent said that a buy-out of French telecoms operator Cegetel from its controlling shareholder, Vivendi, might not happen.
Vodafone and cash-strapped Vivendi, which is selling off assets in a bid to cuts its €19 billion debt, have held talks about a possible buyout of Cegetel, which controls 80 per cent of French mobile phone operator SFR.
"It will depend on whether what we can make available is of sufficient interest to Vivendi," Sir Christopher said. "We have discussed the issue and I have to say my own view is that, in current market conditions, this might not happen."
Analysts see the purchase of Cegetel as a good move for Vodafone as it would give it a foothold in France, a market in which Vodafone has no major mobile presence.
