Vodafone PLC’s (LON:VOD) free cash flow would receive a boost if talks to buy large parts of John Malone’s European cable group Liberty Global result in a deal, according to Citigroup.
The FTSE 100-listed company confirmed it was in discussions with Liberty Global in February about buying some of the cable company’s assets in the continental European countries where they both operate.
Liberty’s Unitymedia business in Germany would help Vodafone to take on the country’s leading broadband provider Deutsche Telekom.
“We think a potential debt and hybrid funded deal to buy Unitymedia for €15.8 - 19.0bn (10-12x FY19 OCF) would add €700-830m or 12-15% to Vodafone's free cash flow,” said Citi.
Citi upgraded Vodafone to a ‘buy’ rating from ‘neutral’ on a lowered target price of 220p.
The broker added: “Vodafone's markets remain competitive but Germany and Spain look to us to be structurally attractive for the long term, the UK is improving, the Netherlands may have stabilised and India could end up with a much more appealing market structure.
“On the other hand, conditions look set to get tougher in Italy and near term.”
READ: Vodafone's quarterly revenue drops on impact of Dutch unit sale and forex
Shares in Vodafone edged up 0.31% to 194.6p in morning trading.