Some of Vodafone’s small shareholders are confused. And, frankly, it’s not hard to see why. Next week, shares in Vantage Towers, the European masts business that is fully owned by the telecoms group, will begin trading in Frankfurt.
The listing will generate proceeds for Vodafone of €2.8 billion, a fairly tidy sum. But what, some wonder, is going to happen to the money: might it be returned as a special dividend, as has happened before?
Why is the company hiving off part of a high-growth business and what will it mean for the group’s long-suffering shareholders? Will it, heaven forfend, improve the group’s lagging stock price?
Vodafone is based in Newbury, Berkshire, and, since its creation in 1982 as a subsidiary of Racal Electronics, has grown into one of the biggest telecoms groups. It sells mobile, broadband, landline and TV services in Europe and Africa and, as a long-standing member of the FTSE 100, it has a market value of more than £34 billion.
Although the group makes tens of billions in annual revenues it has been loss-making for each of the past two years and it labours under debt of about €44 billion.
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Its Vantage plan is the invention of Nick Read, 57, who became head of Vodafone in late 2018 and has already streamlined the group and pulled it out of non-core markets.
Under a process that has been in the works for more than a year, Read is moving to capitalise on the group’s ownership of a network of tens of thousands of masts across Europe that supply networks including 5G to more than 110 million customers.
Vantage Towers consolidates Vodafone’s ownership of sites in eight countries, including Spain, Greece and Portugal, into one business. It also contains Vodafone’s 50 per cent stake in a joint venture with O2 in the UK and a 33 per cent holding in an already listed business in Italy, called Inwit. Including these, there are about 82,000 masts.
The company is the No 1 or No 2 player in nine of its ten markets, the exception being the Czech Republic. Vantage is a growth business, not just because of the rise of 5G communications, but also because other operators as well as Vodafone pay to use the masts to supply their own customers. The design of the whole process is actually pretty neat. An indicative range for Vantage Towers’ shares has been set at between €22.50 and €29, but Vodafone will raise €2.8 billion irrespective of the final price. At the bottom end, the group will sell a 24.6 per cent stake, which falls to just 19.1 per cent if pricing is at the top.
The proceeds are expected to be used to reduce Vodafone’s debts to within its targeted range of between 2.5 and 3 times pre-adjusted earnings before charges. While some shareholders might be disappointed not to be receiving a special payout, there should be other rewards.
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Once listed, if it trades in line with sector peers, Vantage should be valued at up to 24 times its earnings before interest, tax and other charges. That is way ahead of where Vodafone shares trade, at about six times earnings, in line with its European rivals.
The hope is that, with Vodafone remaining the majority owner of a business with a separately listed worth nearing €15 billion, the value created should help to put some wind into its own share price.
Vodafone will receive dividends from Vantage Towers, as it does from Inwit, and has the option of reducing its stake further in time if it chooses.
Its shares, which closed up by about ½p, or 0.5 per cent, to 128½p yesterday, could do with a lift. They trade for about 16.6 times Numis’s forecast earnings and, with a dividend yield of 6.1 per cent, they are a clear buy.
ADVICE Buy
WHY Leaner, more efficient group benefiting financially from the listing and the shares should be boosted too
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Man Group
Hedge funds live or die based on their ability to generate better returns than anyone else and in that, Man Group is no different.
Where it does deviate is that it also operates more conventional asset management products, such as long-only equity funds. Plus, it is driven by technology, is considerably bigger, and is listed.
Man was founded as a sugar trader in 1783 and later expanded into other commodities, including coffee and cocoa. Having floated on the London market in 1994, it has grown both organically and through acquisitions, buying GLG a decade ago and FRM two years later.
The group is particularly well known for its AHL funds, which use algorithms to take positions on macroeconomic movements and which account for about €30 billion (£25 billion) of its total funds under management. Alternative strategies count for a little more than 60 per cent of its assets.
Bearing in mind the carnage that coronavirus brought to the world’s markets, Man Group’s performance stood up reassuringly well last year. Although during the first half, assets under management slid, they recovered strongly over the subsequent six months to stand at a record $123.6 billion in December.
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A net $1.8 billion of new money flowed in last year, reversing the $1.3 billion of departing business over the previous 12 months.
However, performance did suffer. Man Group generated an investment return of $3.3 billion over the 12 months, two-thirds below the previous year’s $10.1 billion. Although management fees dipped slightly over the year, the net result of the fall in assets during the first half, the group’s performance fees slumped by 42 per to $199 million.
Still, there’s plenty to be encouraged about. Man’s margins have been improving and it has been reasonably upbeat on the outlook for the year ahead.
Man Group’s shares, up by ¼p or 0.21 per cent to 155p, have performed strongly since late last year but remain inexpensive. They are priced at about 8.6 times Morgan Stanley’s forecast earnings and offer a dividend yield of just under 7 per cent. A solid long-term hold.
ADVICE Hold
WHY Has been resilient while markets under pressure
