Europe Flash: Vodafone – TowerCo debt reduction potential
Plans by Vodafone [LON:VOD] to explore options around its mobile telecom tower operations have some significant implications for the telco’s valuation and debt position.
New CEO Nick Read confirmed at half-year results published on 13 November that Vodafone was evaluating “the optimal strategic and financial direction” for its tower assets.
Multiples attracted by tower-focused pureplay peers and precedent transactions indicate Vodafone’s directly owned masts across Europe might be worth in the region of EUR 17bn – EUR 21bn, according to estimates by the Flash, on a standalone basis.
Vodafone had a market cap of EUR 49.8bn and an enterprise value of EUR 81.9bn as at yesterday’s close (26 November). Vodafone disclosed at half-year results it had placed 57,600 assets across Europe into a Virtual TowerCo on which it is conducting legal and tax due diligence to evaluate financial options.
Financials for Vodafone’s tower assets are not separately disclosed in the telco’s accounts, so valuations prior to the unit’s carve-out are likely to be rough. In the absence of financials, Vodafone’s TowerCo valuation can be approximated from a few common data points published by Vodafone and its pureplay mobile towers peers.
Listed tower companies in Europe include Cellnex [BME:CLNX] and former Telecom Italia [BIT:TIT] unit Inwit [BIT:INW]. Cellnex, which operates across Europe, has an EUR 8.3bn enterprise value and trades at 20.5x trailing-12-month EBITDA. Inwit, which trades only in Italy, has an enterprise value of EUR 4bn and is valued at 18.5x EBITDA.
Cellnex has around 28,000 assets and an EV per tower of EUR 296,000 while Inwit has around 11,000 towers at EUR 363,000 per tower. These metrics indicate an approximate valuation range for Vodafone’s assets of EUR 17bn to EUR 21bn.
Vodafone’s 57,600 directly owned assets exclude tower joint ventures in the UK and the Netherlands that include a further 22,300 sites. Assets in the UK total 19,200 and are owned in a 50:50 joint venture with Telefonica [BME:TEF].
Read said on the 13 November results call that Vodafone was looking for partners on a range of assets that it could share without losing differentiation as a business.
Partnering on towers, for example through a 50% stake sale, would help reduce reported net debt at 30 September of EUR 32bn, which is around 3.0x pro-forma for pending M&A.
Read also said there are opportunities to increase tenancy ratios, a key of measure of performance for tower companies, as part of its initial plan to carve out the business.
Disposal of the assets, which would be similar to a sale and leaseback transaction since Vodafone would have to pay tower fees into a joint venture, might help address question marks over the sustainability of dividend payments. Vodafone’s dividend, expected at EUR 0.1507 per share for the year to 31 March 2019, is in excess of trailing-12-month adjusted earnings per share of EUR 0.088, though management says a robust free cash flow outlook justifies the payout.