Today’s 5%, £1.25bn stake acquisition in Vodafone Group PLC (LSE:VOD) by Virgin Media O2-owning, cable cowboy John Malone-chaired Liberty Global (NASDAQ:LBTYA) marks the third significant institutional investment in the beleaguered FTSE 100 telecoms multinational in recent months.
French billionaire and former sex-chat baron Xavier Niel’s Atlas Investissement vehicle snapped up a 2.5% stake in September 2022, while Etilisat (aka e&)’s latest raid has increased the UAE telecoms group’s stake to around 13%.
Strategic investors, it seems, are a bit like London buses: You wait for one to come along then three show up all at once.
That is, at least, how Deutsche Bank’s head of European TMT research Robert Grindle put it.
But given the issues surrounding Vodafone in recent times, not to mention the group's debt pile of around £40bn, what do these investors know that others might not?
Niel and Liberty Global (NASDAQ:LBTYA) chief Mike Fries have expressed similar views on Vodafone, principally that its valuation has yet to take into account the rudderless ship’s attempts at streamlining its operations.
Fries called Vodafone an “opportunistic and financial investment” in the Financial Times yesterday, while Niel has previously said he’s “supportive of Vodafone’s publicly stated intention to pursue consolidation opportunities”.
Grindle at Deutsche Bank concurred with their aligned sentiment, pointing to recent sales of mobile tower assets in Europe, namely Vantage Towers in Germany and Vodafone Hungary, as evidence that the board is getting serious about streamlining its hodgepodge of business assets.
But Europe remains a dead weight around Vodafone’s neck; revenues declined across Spain, Italy and other parts of Europe in the latest quarter, dragging year-on-year revenues down 0.4%.
A hyperinflationary Turkish economy swooped in to reinforce the top line, with revenues increasing more than 50% in that market.
Telco sector consolidation
Internal streamlining aside, sector-side consolidation feeds into the Vodafone investment case too.
Liberty has ruled out a Vodafone takeover for now, but the British telecoms sector is ripe for consolidation, according to Fries.
The UK is an “anomaly” is that there are four major players in the telecoms sector – BT-owned EE, Vodafone, Liberty’s Virgin Media O2, and Three – at least one operator more than typical in any other single market, Fries noted.
Three is the most likely contender for a Vodafone merger, given the on-again-off-again talks between the two operators over the past 12 months or so.
So the investment case for Vodafone appears to be as such: The very real possibility of consolidation in the mobile network operator sector, combined with ongoing disposals of dead-weight business assets and a tidy dividend with high-single-digit yields due to the telco’s severely depressed share valuation.
The fact that Liberty sees value “is in our opinion supportive for the Vodafone equity story”, not least due to the former’s knowledge of a number of European markets, said Grindle.
Vodafone shares have added 5% in the past month, faring better than the FTSE 100 index, but the picture isn’t as pretty in the wider context: Vodafone is over 50% down in the past five years
This could be a pivotal turnaround point, but long-term investors will tell you that has been said before, many times.