Vodafone Drops on Network Investment Plan’s Cash Flow Hit


Vodafone Group Plc shares fell as much as 8.3% after Chief Executive Officer Nick Read’s strategy showed higher capital expenditure on network investments will hit free cash flow.

  • Although Read’s message is “spend more to grow more,” the “prospect of the improved growth may take longer for investors to absorb,” said Berenberg analyst Carl Murdock-Smith.
  • Vodafone said it can increase margins in the medium-term and guided for adjusted earnings before interest, tax, depreciation and amortization after leases between 15 billion and 15.4 billion euros ($18.8 billion) in 2022, with adjusted free cash flow of at least 5.2 billion euros.
  • Organic service revenue rose 0.8% in the fourth quarter versus an average analyst estimate of 0.4% compiled by Bloomberg.

Key Insights

  • Read wants to do more with less. He’s sold some of the telecom group’s farther-flung units like New Zealand while cutting costs and consolidating operations in Europe and Africa.
  • The centerpiece of this asset-squeezing strategy has been carving out and listing Vodafone’s masts in the form of Vantage Towers AG, which reported earnings in line with guidance on Monday.
  • The Newbury, England-based telecom group will focus on fixed and mobile connectivity in Europe, and mobile data and payments in Africa, the company said in a statement Tuesday. That will mean upgrading fixed and wireless networks.
    • In Africa, the group had 84.9 million data users and mobile money platform M-Pesa handled 15.2 billion transactions in 2021, an increase of 25%.
  • Vodafone has been the subject of press reports and speculation about potential consolidation deals as rivals around Europe merge: Liberty Global Plc is set to combine its U.K. operations with Telefonica SA’s O2, while Spanish rival Masmovil Ibercom SA is snapping up Euskaltel SA.

Market Context

  • Vodafone shares have risen 5.4% in the 12 months to Tuesday versus a 13.1% rise in the Stoxx Europe 600 Telecommunications Index.
  • Of 26 analysts surveyed by Bloomberg, 23 rate Vodafone buy, 1 hold and 2 sell.

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