Vantage Towers IPO may come at just the right time when European results start to improve
Nick Read may be the recipient of a timing lucky. Vodafone’s CEO confirmed on Wednesday his plan to list the Vantage Towers infrastructure unit in Frankfurt next month. The spin-off should unlock value and reduce debt, but it also gives Read one less place to hide from frustrated investors. Fortunately, the core of the group’s European operations may be turning the corner just in time.
Read deserves credit for pulling off the Vantage IPO, which takes advantage of strong investor demand for telecom infrastructure and its reliable inflation-linked cash flows. The unbundling allows Vantage to play an active role in consolidating the sector, which has so far been led by rival Cellnex Telecom.
Another point in favor is the possibility of reducing Vodafone’s debt, which at the end of September amounted to 42,000 million euros. In the year to March, Vantage generated a proforma EBITDA of 730 million, including lease payments. Assuming this grows by 5% and applying a Cellnex-style multiple of 22 times, Vantage will have an enterprise value of € 17 billion. That includes probably $ 3 billion in debt transferred from its parent. If Vodafone goes public with a 30% stake, it will pocket 4,000 million to strengthen its balance sheet.
Following the IPO, the company will have, for example, a 70% stake in Vantage and a 60% stake in Vodacom, an Africa-focused subsidiary of $ 15.5 billion (€ 12.7 billion). By deducting the debt of these subsidiaries, Read’s empire becomes a European services business with an enterprise value of € 58 billion, according to our calculations. It must be recognized that it is a considerable value. But with a net debt of 3 times the ebitda, Read will not be able to afford any major acquisitions. And with a valuation of only 5 times the ebitda of the European unit, investors do not expect great growth, which is not surprising given the 8% contraction of the group’s turnover since 2017.
That’s where timing comes in. Recent results for the three months to December revealed green shoots, especially in Germany. Service revenue in Vodafone’s largest market grew 1%, compared to a 0.1% contraction in the previous three months. If the resumption of roaming revenue is taken into account (roaming) when Europeans travel again, this growth rate could easily double. The rollout of the new superfast 5G connections this year may provide additional revenue support. Read could end up enjoying some warmth.