LONDON: Vodafone Group Plc plans to carve out its phone towers into a new business and consider an initial public offering or minority stake sale to lower debt.
The shares rose as much as 8.5% in early London trading after the carrier announced plans to separate Europe’s largest towers portfolio by May 2020. The business will consist of 61,700 masts in 10 countries, Vodafone said in a statement alongside financial results that beat expectations.
The move comes out of a review started last year by Nick Read shortly after he became chief executive officer to consider how to raise money from infrastructure to reduce leverage and help the cash-constrained carrier fund the rollout of fifth-generation mobile services.
Since then, Read has been pursuing tower-sharing with rivals and overhauling existing deals, including with Telefonica’s O2 in the UK and Telecom Italia SpA’s Inwit SpA. Vodafone also said it’s received several offers for tower assets in recent months.
“‘We are moving very quickly. It’s one of the things that I prioritised coming into the role,” Read said on a call with journalists.
Vodafone joins European carriers including Altice Europe NV and Iliad SA in taking advantage of rising demand for telecom infrastructure from private equity funds flush with cash.
Telecom infrastructure businesses that are separate from their phone-carrier customers command richer valuations, because they have steady income streams that are insulated from the underlying consumer. Boston-based American Tower Corp, with a market value of US$91bil, trades at a price-to-earnings multiple of 67, according to data compiled by Bloomberg, compared with 22 for Vodafone.
Shares of China Tower Corp, the state-owned wireless infrastructure owner, have surged 63% since the company raised US$6.9bil in an IPO last year. China Tower was formed by combining tower assets of China Mobile Ltd, China Unicom Hong Kong Ltd and China Telecom Corp in 2015 as part of a broader plan to reform the nation’s state-dominated wireless industry.
TowerCo, as Vodafone is calling the unit for now, would have annual revenue of ?1.7bil (US$1.9bil) and earnings before interest, taxes, depreciation and amortisation of about ?900mil.
That could imply an enterprise value of ?16bil, depending on the company’s structure, according to James Ratzer, an analyst New Street Research in London.
“These tower companies at the moment, given there’s an insatiable appetite for yield assets, can trade anywhere from 18 to 21 times Ebitda, so these assets trade on high high multiples at the moment where you have strong anchor tenant agreements,” Ratzer said.
Vodafone announced the tower plans alongside fiscal first-quarter financial results that beat analysts’ estimates, as the company benefited from pricing changes in Italy and slowed customer losses. Organic service revenue fell 0.2%, compared with the average analyst estimate for a decline of 0.6%, according to a company-compiled consensus.
Read said the company is now at a “turning point” with regards to its service revenue, implying growth could be around the corner. — Bloomberg.
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