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Investing.com — Vodafone (LON:VOD) CEO Nick Read will be cursing his luck.
The world’s second-biggest mobile network operator had probably hoped for a quiet news day to announce the IPO of its masts unit, Vantage Towers, allowing media and investors to give due attention to Read’s latest big idea for unlocking value for shareholders.
Instead, the screens are awash with red as concerns about the U.S. recovery stalling, the risk of a delay to the latest U.S. stimulus package and the latest diplomatic spat between the U.S. and China.
The benchmark Stoxx 600 fell 1.7% by mid-morning in London, putting it on course to break a streak of three straight weekly gains.
To add insult to injury, Vodafone even underperformed both the broader market and the telecom sector, its stock falling 4.8% to a two-month low, after reporting underwhelming numbers for the first quarter of its fiscal year. The company’s reiteration of an expected 5 billion euros in free cash flow this year – at a time when few are able to give guidance that far ahead – went unrewarded. The market was more concerned about that a 2.8% drop in revenue could become the new normal in the current weak macro environment.
Spinning off the masts business has been a goal for Vodafone for years. The high proportion of fixed costs in the infrastructure puts a premium on their being fully used. Opening up the masts to third-party use makes that easier (as well as helping to keep ever-watchful antitrust regulators off its back). While Vodafone will account for 90% of Vantage’s revenue to start with, that share is expected to fall over time. The company expects to keep a majority stake in Vantage all the same.
The attractions of a separate listing have only increased as Read and his team have watched the market attach ever higher multiples to rival mast businesses: Spain’s Cellnex SA has been the standout performer of the year with a rise of 49%, while Italian-based Inwit (in which Vantage Towers will hold a 32% stake) has also outperformed the sector even with a more modest rise of 5.5%. Vodafone stock, by contrast, is down 17% year-to-date.
In addition to the Inwit stake, Vantage Towers will have 68,000 sites across nine European markets. It claims a number 1 or 2 market position in almost all of them. It will be the biggest business of its kind in Europe.
Vodafone may also decide to include its 50% stake in the venture that holds its U.K. masts, CTIL. Until it does so, however, Vantage Towers looks a very continental European beast, which, together with Vodafone’s own increasing focus on the German market. goes some way to explaining the choice of Frankfurt over London for the listing, which is tentatively set for the first quarter of 2021.
