Vodafone adds salve after ripping off plaster

Fawad Maqsood July 26, 2019

MILAN: Vodafone is giving something back to investors, having previously taken something away. The $44 billion British telecoms operator plans to put its European masts into a separate company, which ought to unlock value because of the relatively high valuations awarded to infrastructure assets.

Meanwhile listing the towers business could help Vodafone cut debt. That should soothe investors reeling from an earlier dividend cut.

Faced with the need to invest in better and faster mobile services, Vodafone chief Nick Read is already trying to get more out of the company’s masts by sharing infrastructure in countries like Italy and Spain.

A deal to merge Vodafone’s Italian towers with Telecom Italia’s listed unit Inwit is expected on Friday. Read’s new plan goes further, putting Vodafone’s towers assets into a new company by 2020, and later selling a portion through an initial public offering.

That should make for a better valuation for Vodafone itself. If the new towers company can fetch a valuation that’s 20 times its last-reported 900 million euros of annual EBITDA, roughly the same multiple as Inwit, it could be worth 18 billion euros.

Value the remaining 13 billion euros of EBITDA on a multiple of 5, just above where Vodafone traded as of Thursday, and the whole group would have an enterprise value of around 83 billion euros. Lop off 27 billion euros of net debt and it leaves equity of 56 billion euros, 40% more than Thursday’s closing price.

Anything that gives options for paying down debt is helpful. Vodafone’s 18 billion euro acquisition of some of Liberty Global’s European cable assets, not yet completed, will lift Vodafone’s debt to some 3 times its EBITDA. Read’s towers strategy partly offsets the risks from Vodafone’s debt binge.

Above all, it shows that his decision to slash the dividend in May was indeed pain in the name of eventual shareholder gain.

Copyright Reuters, 2019

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