(COM) 30/05/00 06:00: OUTLOOK: Vodafone FY results to take back-seat to imminent Orange sale
OUTLOOK: Vodafone FY results to take back-seat to imminent Orange sale
LONDON (AFX) - Vodafone Airtouch PLC's full-year results will cap a year
when the mobile phone group has transformed itself into one of the world's
largest corporate entities, but most attention will focus on the anticipated 40
bln eur-plus sale of Orange PLC to France Telecom SA.
Analysts expect pre-exceptional pretax profit before goodwill of between
2.15-2.37 bln stg. Comparisons with last year are difficult given the results
will incorporate both Airtouch, a leading U.S. mobile communications provider,
and German engineering and telecoms giant Mannesmann AG for the first time.
The dividend is expected to rise to 1.4-1.5 pence from 1.27 pence.
The results though will take a back-seat to what the company says about UK
mobile phone operator Orange, which it has to sell for regulatory reasons,
following its 110 bln stg takeover of Mannesmann. Vodafone had originally said
it would float off Orange in the third quarter, but the attractions of a trade
sale have grown as investors increasingly shy away from the TMT flotations.
Analysts are also keen to get a clearer picture about how the group plans to
fund the cost of third generation mobile phone licences in Europe - both of
acquiring them and investing in building them out. They will also seek a steer
on what the company intends to do with Mannesmann's fixed line businesses and
when a partial flotation of the Verizon joint venture in the U.S may take place.
Verizon was created when Vodafone agreed to merge its mobile interests in
the U.S. with those of Bell Atlantic and GTE. Verizon serves 90 pct of the U.S.
population and is 45 pct owned by Vodafone and could fetch around 150 bln usd.
Vodafone has also inherited a hefty debt burden of over 15 bln stg following
the takeovers of Airtouch and Mannesmann.
"The numbers will provide a benchmark going forward but everyone will be
looking for comfort that Vodafone's debt position is manageable and the company
can afford the investment in infrastructure (for 3G licences)," said Teather &
Greenwood analyst Steve Trowbridge. "We are looking for a forward-looking
statement."
"The key thing will be what the company says about Orange," said SG
Securities analysts Jim McCafferty. "How much is it worth and what are they
going to do with the funds." McCafferty is forecasting pre-exceptional pretax
profit before goodwill of 2.274 bln stg and retains a strong buy on the stock.
There are hopes Vodafone will announce the sale - or at least give an update
- of Orange to France Telecom for more than 40 bln eur in cash and shares.
France Telecom is thought to have raised over 20 bln stg to help fund a bid for
Orange. Finland's Sonera Oy and Dutch telco KPN NV are also thought to be
interested in buying Orange.
A major sticking point for a trade sale remains the viewpoint of Orange
chief executive Hans Snook and his management team, who have expressed their
wish for Orange to be spun off from Vodafone and relisted in London.
There has been talk the European Union would block any deal leaving Vodafone
with an ongoing interest in its U.K. rival, however indirect, but the EU has
said it is not opposed in principle to Vodafone accepting a bid for Orange in
both and shares.
As well as what's going on with Orange, Vodafone chief executive Chris Gent
will be quizzed about what the group plans to do with Mannesmann's fixed line
operations. There is talk that the group is lining up a 15 bln stg sale of Arcor
in Germany and Infostrada SpA in Italy to find further cash.
A decision to sell the businesses would mark a change to the strategy
outlined during the 110 bln stg takeover of Mannesmann.
At the time, Vodafone said it intended "to keep these fixed-line businesses
separate under their current management and to maintain strategic flexibility to
maximise their value, which may include an IPO."
However the escalating cost of winning 3G licences has changed all that.
In the last month Vodafone has shed over 30 pct of its value as the markets
worried about the 3G costs and the stock got embroiled in the TMT fallout.
In a note to clients earlier this week, Deutsche Bank analysts Chris Manso
and Andrew Beale said Vodafone's estimated global proportionate liability for
the new 3G licences is around 51 bln eur. Of this, they estimate that the
licence cost in Germany will amount to 15-20 bln eur. The group won the largest
licence open to incumbents for over 6 bln stg.
"In our view, the move to higher investment levels is clearly negative for
valuations and likely to act as a short-term dampener on returns, but it is no
disaster," said the analysts, who are forecasting clean pretax profit before
goodwill of 2.389 bln stand and retain a strong buy stance on the stock.
The Deutsche Bank analysts lowered their discounted cash flow valuation on
the stock to 465 pence from 525 pence, "primarily as a result of the UMTS
licence costs." Vodafone's financing costs would be solved by the sale of Orange
for mainly cash, the analysts said.
If, after extensive lobbying from Orange, a demerger was required, Vodafone's
asset sales, planned and possible IPOs "would result in an achievable, but
tighter financing," the analysts said.
However bringing TMT stocks to the market is no easy thing.
On Thursday, Vodafone had to shelve its planned flotation of a 17 pct stake
of Vodafone Pacific Pty Ltd, blaming the volatility in equity markets and
particularly the telecoms sector. Gent will be asked about when the company
intends to try again with the flotation.
The company said it had decided not to launch its IPO due to "current market
conditions and volatility in the global equity markets in general and the
telecommunications and media sectors in particular."
Vodafone is already selling Mannesmann's industrial arm Atecs for around 9.6
bln eur and is offloading its 7.5 pct stake in Cegetel of France, which could
fetch up to 3 bln eur, analysts said. Mannesmann's 1 bln eur watch business is
also said to be earmarked for disposal.
pp/mrg
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