- JV to create broadband network to seven million homes
- Shareholder returns have significantly lagged FTSE 100
- Investors give deal lukewarm response as shares barely budge
Mobile network operator Vodafone (VOD) is to build a fibre-to-the-premises broadband network in Germany after striking a joint venture with Patrick Drahi’s Altice telecoms group.
This is Vodafone’s latest move as chief executive Nick Read tries to accelerate growth after years of limp returns for investors. Last year (to 31 March 2022) Vodafone reported revenue of €45.6 billion, barely better than it recorded five years ago in 2018. Over the same timeframe, Vodafone’s net income has fallen by more than €350 million, while earnings per share have halved, according to data provided by Morningstar.
Morningstar data shows that Vodafone has delivered an average annual total return of just 2.08% over the past decade, versus 5.65% of the FTSE 100.
VODAFONE’S BIGGEST MARKET
Germany is Vodafone’s largest individual market. Last year the company reported approximately €5.7 billion of EBITDA (earnings before interest, tax, depreciation and amortisation) on €13.1 billion revenues, or roughly 37% and 29% of the group’s total.
Its fixed line (cable) business comprises 10.8 million customers from 24.3 million homes passed, accounting for 44% of Germany revenues, according to Megabuyte analysis. ‘The joint venture will overbuild up to seven million premises with new DOCSIS-based technologies and bring fibre closer to the premise, promising up to 10Gbps over time,’ said Megabuyte analyst Philip Carse.
80% of the rollout will be focussed on large housing associations, a feature of the German housing market, on Vodafone’s existing footprint, with the rest outside the current footprint.
DEBT TO FUND BUILD COST
Vodafone will be anchor tenant but is not providing any revenue or volume guarantees. It expects to receive up to €1.2 billion cash from Altice over time (roughly €120 million upfront, €487 million during the network build, and another €595 million as an earn out option), with 80% of the estimated €7 billion build cost met by debt within the JV.
Vodafone recently confirmed talks on a potential 51%/49% tie-up with UK mobile network rival Three, which would create a circa £8 billion revenue business, if regulators give it the go-ahead. Vodafone has also been widely speculated to be interested in £1.5 billion revenue business TalkTalk as a route to expanding its UK broadband offering.
Vodafone shares inched 0.4% higher in response to the new JV to 100p, perhaps implying that Vodafone will have to do far more to convince investors that it can solve its limp growth rates.
