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
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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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BT Group PLC127.10 GBX-0.16Rating
Premier Miton Global Infras Inc B Acc132.12 GBP-1.11Rating
Vodafone Group PLC73.50 GBX-0.92Rating

About Author

James Gard

James Gard  is senior editor for Morningstar.co.uk


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