Vodafone Group PLC’s (LON:VOD) deal to buy continental European assets from Liberty Global is highly likely to receive the go-ahead from regulators but that could be a long way off, according to Citigroup.
Vodafone expects the deal to close by mid-2019.
Citi downgraded Vodafone to a ‘neutral’ rating, saying the deal is “structure sensible” but it might be a while before it receives clearance.
“We believe deal clearance is highly likely but the market will likely wait to see the remedies that may be required before it credits Vodafone for the full synergy potential,” the broker said.
On Tuesday, Vodafone announced that its chief executive Vittorio Colao is to step down in October and would be replaced by chief financial officer Nick Read.
It also reported an attributable profit of €2.5bn, compared to a loss of €6.3bn in 2017 when the company incurred a one-off €4.5bn charge in relation to merging its India business with the country’s mobile phone provider Idea Cellular Limited.
India the 'biggest risk' to sentiment on Vodafone
Adjusted underlying earnings (EBITDA) increased 4.2% to €14.7bn. Total revenue fell 2.2% to €46.6bn but organic revenue rose 1.6% and free cash flow (FCF) increased 22% to €4.0bn.
“We look at VOD on a proportionate basis in terms of: a) revenues/ EBITDA growth; b) FCF generation; and c) leverage (3.0x and 3.8x post Liberty close and pre synergies),” Citi said.
“We see India as the biggest risk to sentiment as leverage and margin pressure raise concerns of recap needs.”
In mid-morning trading, shares in Vodafone were down 1.1% to 193.7p.