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Vodafone to Spin Off Towers Business

Shares in FTSE 100 telecoms firm surge as it unveils ambitious plans to create a separate company for its European towers and masts infrastructure

James Gard 26 July, 2019 | 10:52AM

Vodafone

Shares in FTSE 100 telecoms firm Vodafone (VOD) surged after announcing plans to separate out its European towers business. The 8% jump in the share price gives some respite to long-suffering Vodafone investors, who have suffered a dividend cut this year and faced a 44% slide in the shares in the last 18 months.

Vodafone plans to create “Europe’s largest tower company” through spinning off its European masts and infrastructure businesses into “TowerCo”. “We believe there is a substantial opportunity to unlock the embedded value of our towers,” Vodafone said, and this could include stock market flotations or sales of assets in individual countries. This involves 61,000 towers in 10 companies and potential profits of just below €1 billion.

The company’s dividend was by 40% in May when the shares were yielding around 10%. But Helal Miah, investment research analyst at The Share Centre, believes the cut is still reversible: “Despite a recent cut, the 6% dividend yield is still very attractive and with improved corporate performance we believe that the rebased dividend can grow once again.”

Morningstar rates Vodafone as a four-star stock, which means that it is undervalued – analyst Michael Hodel says the company’s “fair value” is 210p. Shares rose 8% after this latest announcement to 142p.

The company also released a trading statement for its first quarter that highlighted how Vodafone is currently managing investor expectations: a 0.2% decline in organic service revenues compares favourably with a 0.7% fall in the quarter before that. Shareholders were encouraged by the update, especially as southern Europe, so often a headwind for Vodafone, showed signs of improvement. “We expect the gradual recovery in our service revenues to continue,” said chief executive Nick Read. Emerging market revenue growth was above 5% in the quarter, the company said.

Fellow FTSE 100 telecoms firm BT (BT.A) last week announced a £210 million deal for the sale of its London HQ. Analysts are not ruling out BT joining Vodafone in cutting its dividend.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BT Group PLC178.88 GBX0.88
LF Miton Global Infrastructure Inc B Acc121.22 GBP0.46
Vodafone Group PLC161.39 GBX0.62

About Author

James Gard  is content editor for Morningstar.co.uk

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