Vodafone (AO) | Hold | Germany is sending mixed signals

Research evidence excerpt

Vodafone (AO) | Hold | Germany is sending mixed signals

Vodafone Hold | Target Price: 96p

Company description Management

Vodafone Group is one of Europe´s largest telecommunications companies and Margherita Della Valle, CEO

provides a range of services in B2C and B2B. The main asset in the German unit, Luka Mucic, departing CFO

representing >40% of group EBITDA. The UK is the second largest asset following Pilar Lopez, CFO

the merger of VOD and Three. Within Europe, Vodafone is also present in Key shareholders

Portugal, Greece, Ireland and Romania. Vodafone also has a presence in Free float 81.50%

Emerging Markets, mainly through Vodacom (South Africa, Egypt, Kenya and a Etisalat (E&) 16.00%

few other small African countries) and Turkey Atlas Investissement 2.50% Liberty Global 4.92%

Investment case Valuation methodology

We see little chance of value generation through more radical We use an SOP-based model, with a DCF for the main assets in

portfolio streamlining. Europe (WACC 8.0% to 11.3%), and multiples for the non-listed

We expect Vodafone Europe to underperform peers and deliver assets.

soft results in the coming years. Vodafone lacks a strong We use the market price for listed assets, except for Vodafone

differentiating factor to compete effectively in the premium Idea, as we believe the market price does not reflect the fair

segment (brand, distribution, convergence, and TV have not value.

proven to be growth levers) and is increasingly facing challenges We deduct EUR4.7bn of contingent liabilities, EUR1.5bn of

from value players. It is more exposed than peers to cost provisions, and EUR4.5bn of spectrum costs, but also add

inflation and macro headwinds (in B2B and mobile). EUR3.9bn of tax assets.