No Mast, No Entry


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What's going on?

Looks like Vodafone might’ve misheard the latest coronavirus guidance: the telecoms giant said on Friday it’s planning an initial public offering (IPO) for its communication towers segment.

What does this mean?

Vodafone’s telecom towers unit owns and operates 68,000 communication masts across Europe. They’re vital infrastructure for the supply of communication services, and Vodafone charges service providers fees for their use.

All in all, that makes it a relatively stable business – and not one Vodafone would necessarily want to hand over to investors. But it might be planning to do just that next year, as it tries to take advantage of the higher multiple of profits investors are willing to pay for telecom tower companies than telecom service companies. Spanish tower company Cellnex, for instance, is currently worth about 25 times last year’s “profit” – a multiple that would make Vodafone’s tower business worth around $20 billion. Vodafone as a whole, meanwhile, is only worth nine times last year’s profit (tweet this).

Why should I care?

For markets: Call me, maybe?

Next year’s split between Vodafone’s service and towers businesses will leave Vodafone awash with cash it’ll probably use to pay off part of its debt. And while that could reassure some investors, it may not be the game-changer Vodafone wants: the company announced quarterly results on Friday that were damaged by lower revenue from roaming fees – unsurprisingly, given the dramatically reduced international travel – and its shares fell 5%.

The bigger picture: Let’s see other people.

Seeing as it’s based in the UK, Vodafone might’ve been expected to list its towers business locally. But the company instead surprised investors by announcing it’d IPO the business in Germany, meaning the country’s stock exchange – Deutsche Börse – will profit from increased trading activity at its UK rival’s expense. Just as well, then, that the London Stock Exchange is buying market data provider Refinitiv to help set it apart from other stock exchange businesses.

Originally posted as part of the Finimize daily email.

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