“We model rising margins in FY18 as one-off items fall away. This self-help can also help relieve some of the near-term pressure from Indian competition.
"Post 10% underperformance vs. the sector over the last 3 months, valuation is compelling.
"Catalyst: Our confidence in cost-cutting compounds our belief in Vodafone’s improving structural growth outlook, driving our FY18/19 EBITDA estimates +1%/3% vs. Bloomberg consensus. We also note ‘free’ optionality from potential European cable M&A (worth 10-40p per share and potential market consolidation in India)."
With the new year, Liberty Global (LBTYA +1.1%) and Vodafone (VOD +1.7%) have completed the joint venture they planned to create in the Netherlands, establishing a new converged communications firm.
The venture -- to be called VodafoneZiggo Group -- combines Liberty's Ziggo fiber-rich broadband with Vodafone's top mobile operation into a firm with combined revenue of more than €4B. The venture will sell services under both the Vodafone and Ziggo brands.
After closing and following recapitalization, Liberty Global will receive €2.2B and Vodafone €0.6B in cash.
Once Vodafone's divestment of its fixed business Vodafone Thuis is accounted for, net present value of synergies for the deal is estimated around €3.5B. Vodafone Thuis had been generating negative cash flow (-€73M in the 12 months ended September 2016).
Telstra had taken 2x20 MHz of 700 MHz frequencies in a 2013 auction, in which 2x15 MHz had gone unsold.
Now with the Australian government trying to resell that spectrum, comms minister Mitch Fifield has capped the amount of 700 MHz spectrum any single operator can hold to 2x20 MHz, the level that Telstra is at already.
Vodafone Australia (VOD -0.2%), which skipped the 2013 auction and planned to favor its own 1800-MHz spectrum for 4G, may take a new look at the currently unsold frequencies.
Telecom companies are Europe's "sick man," marking the worst performance among the continent's sectors, and there's little encouraging news ahead, says Leila Abboud.
An index of telecoms has showed up dead last in 2016, with 20% declines (accounting for dividend effects).
Despite serviceable results from the likes of Vodafone (NASDAQ:VOD), Telefonica (NYSE:TEF), Telecom Italia (NYSE:TI), Orange (NYSE:ORAN) and Deutsche Telekom (OTCQX:DTEGY), investors are unimpressed and have driven the sector's overall value near a two-year low.
Blocked acquisitions play a role, as EC chief Margrethe Vestager began blocking national mobile mergers.
Even if the companies come through on sustained growth of market share and revenues, there may not be much to be gained: Enterprise values are around 6.2-6.4 times forward EBITDA -- not far below carriers in the U.S., around 6.5 times (but with quicker growing earnings).
Despite that, many analysts say the reasoning behind getting the two together is still there. And Colao says incumbent telecoms are still powerful.
"They see that in each country there is a KPN, a Telecom Italia, a Deutsche Telekom, a BT, that are at the end of the day still incredibly, I would not want to use the word dominant, but let's say influential. And you want a counter force, and we could be that counter force," he said.
New positions for Greenlight Capital as of Sept. 30: U.S. Steel (NYSE:X), and GEO Group (NYSE:GEO).
Major exits: Twenty-First Century Fox (NASDAQ:FOXA), Humana (NYSE:HUM), Perrigo (NASDAQ:PRGO), AmerisourceBergen (NYSE:ABC), Hertz (NYSE:HTZ), Community Health (NYSE:CYH), Lamar Advertising (NASDAQ:LAMR), Vodafone (NASDAQ:VOD).
While UK telecom BT Group (BT -0.3%) has dug in regarding pressure to unload its Openreach infrastructure arm, one shareholder has reportedly suggested it should consider a sell-off.
Aviva Investors says BT should ponder the move, one which would ease regulatory pressures and please rivals, according to the Sunday Telegraph.
"They obviously have been clear that they don't want to do it, but that doesn't mean it can't be done," said Trevor Green, Aviva's head of UK equities, according to the paper. "We just think it should be something which should be explored."
Vodafone (NASDAQ:VOD) has been vocal about pressing for the move, along with Sky (OTCQX:SKYAY) and TalkTalk (OTC:TKTCY) -- all of whom want to maintain access to the wholesale infrastructure at favorable terms. Meanwhile, UK regulators continue to consider whether breaking it up is in the public interest.