We are maintaining our fair value estimate for Vodafone (VOD) at £2.18 per share. Our revenue estimate includes a full 12 months of Kabel Deutschland's results, and eight and a half months of Ono's. Including Ono we expect the firm's revenue to be roughly flat versus last year. We then anticipate that revenue growth will average about 1.7% annually for the next four years, including Ono.
We anticipate that the return to revenue growth is driven by a combination of reduced European sales declines, helped by the end of mobile termination rate cuts, and continued growth from emerging markets, particularly India and Turkey, as well as Vodacom assets in Africa. India is picking up steam after fiscal 2012's slowdown caused by new government regulations.
The positive aspect of the increased regulation is that it has driven several smaller operators out of business and seems to be causing the remainder to behave more rationally. We are pleased to see data growth picking up in many emerging countries, which is helping offset the slowdown in new subscriber growth. That said, we remain leery of the Indian government's telecom policy, which in our opinion has been very detrimental to foreign investment. We expect the firm's earnings before tax margin to decline again this year, before a recovery helped by revenue growth and continued cost-cutting and the end of "Project Spring" in fiscal 2017. We also anticipate a margin boost from Ono, though the benefit from the better margins is offset by the price paid for the acquisition.
Our Bull-Case Scenario
In our bull-case scenario, our fair value estimate is £2.76 per share. In this scenario, we assume that voice services revenue will decline at a slower pace and data revenue will grow at a faster rate than in our base case. With mobile termination rate cuts also nearing an end, we expect data growth to allow all European countries to post increased revenue by fiscal 2019. We project faster growth in emerging markets and expect pricing in India to continue to increase, thus driving stronger revenue growth for Vodafone. We also anticipate the Indian government will permit mergers between wireless operators, providing further margin improvement.
Our Bear Case Scenario
In our bear case, our fair value estimate is £1.22 per share. Here we expect voice revenue declines to be more severe and data growth to be slower than in our base case. The combination causes all Vodafone's European businesses except Turkey to see declining revenue by fiscal 2019. We expect lesser growth in emerging markets and expect India to struggle to increase prices further due to the aftereffects of its price war. We also anticipate that government intervention prevents mergers in India from generating margin improvement. Elsewhere, we expect a harder hit to margins as increased marketing and retention costs are absorbed by reduced revenue. We also assume in this case that Vodafone pays the full £1.5 billion in taxes that India claims, but avoids interest and penalties. Additionally, Ono provides no revenue or margin growth and the high cost of its purchase hurts Vodafone's valuation.
