Vodafone's Presentation
I've been away on business but the following is from their presentation via DBank:
Vodafone’s summer lunch and analyst presentations provided a qualitative
update of Group trading and presentations from Vizzavi and J-Phone.
The bottom line is that subscriber growth is continuing to beat expectations, with annual proportionate global subscriber growth of over 40% this financial year. In Germany, D2’s EBITDA margins are holding up better than T-D1’s – above 30% (vs 15% from T-D1 in H1) – but costs of growth in
Germany will affect Group results to the tune of around £300m (as
expected). ARPU trends are good, whilst SACs are rising slightly. Results
this year are likely to be weighted to the second half, but the company
appears on track to deliver close to 30% pa three year EBITDA growth. With
debt falling to low levels by year end, the company is trading on 25x March
2001 EBITDA, less than 1x forward growth. At this level, the valuation is
compelling, and the shares should perform strongly particularly if the
Hutchison stake overhang is removed. Strong Buy.
Vizzavi. Evan Newmark, CEO of Vizzavi provided an update of progress at
Vizzavi. Although only a short time has elapsed since establishment of the
company (May 2000), progress is being seen on all fronts, with hiring,
strategy development and technology being priorities to date. The Vizzavi
brand will be rolled out in UK and Germany on existing WAP portals, with
the new technology platform and look and feel rolled out in late 2000/early
2001. All-in-all, given the complexity of the start-up, it appears to be on
track.
J-Phone. An overview of J-Phone’s (Vodafone 26.5%) operations in Japan
was provided by Ron Boring, Vice President of Japan for Vodafone. J-Phone
has close to 9 million customers, a 16% market share in what is
effectively a three player market with penetration of 46% in July 2000.
ARPU is high at around $80/month. Data is a major focus in a very
technology oriented market, with data currently accounting for around 6%
of revenues. Key market offerings are messaging – J-Sky Walker (including
long messaging, and picture attachments) and mobile internet(SkyWeb)
which has 300 official partner information providers and over 5,000
independent sites. Roll-out of 3G is planned from May 2001, and contracts
with vendors are under negotiation. In summary, J-Phone appears to be
innovative and holding its own in a competitive market dominated by
DoCoMo.
Group subscriber growth. We have previously highlighted the massive
acceleration of subscriber growth in Germany, where we expect around 25%
of Germans to buy a mobile phone this year. Elsewhere in Group, growth is
apparently progressing ahead of expectations, and the Group is on track for proportionate subscriber growth of over 40% this year (our current forecasts are for 38% growth). In the UK, subscriber growth is running ahead of Q2.
ARPU and SAC trends. ARPU is generally running to expectations – although
with growth dilution in the higher growth markets such as Germany.
Underlying trends of contract and pre-pay usage and revenues still appear
encouraging. Acquisition costs are trending slightly upwards in many of the
European markets. We have previously written about the acquisition costs in
T-D1, and D2 is seeing similar costs. The company is hopeful, however, that
German acquisition costs have peaked.
Margin trends. As we have previously highlighted, the costs of massive
growth in Germany. EBITDA margins in D2 have apparently remained much
more resilient than at T-D1 – over 30% vs 15% estimate for T-D1 – as
highlighted by last week’s Deutsche Telekom H1 results.report. Acquisition
costs are broadly in line – the difference between T-D1 and D2 is accounted for primarily by D2’s superior subscriber base and cost control. We do not see
foresee any other significant margin trends in other cellular assets away from our existing forecasts.
3G Licensing. With licences already granted in UK, Germany, Netherlands,
Spain and Japan, the licence price pre-announced for France, and beauty
parades in certain Scandinavian/Nordic markets, the costs of 3G licensing are
becoming clearer. We expect to see two-tier market for 3G licences emerging
with the large footprint markets achieving significantly higher prices than smaller markets. The US market will see C and F band auctions in November with the 700MHz auction now delayed to March. We are now confident that our current expectation of Euro 51 billion proportionate liabilities can be
reduced to around Euro 35 billion.
Technology outlook. Vodafone is now anticipating the launch of full (multi-slot) GPRS in late H1 2001, given limited availability of handsets in volume. Except where commitments have been made to launch earlier as part of the licensing process, Vodafone is looking to launch UMTS around mid-2002, will full coverage taking some years from here. This is in line with the expectations
built into our forecasts.
Fixed line assets. Vodafone has previously announced the intention to IPO Infostrada – and this is progressing. Recent press reports suggest that an alternative process of sale of Infostrada is in progress, and we anticipate news on this front in the next few weeks. We await definitive plans for IPO of Arcor. Vodafone appears keen to pursue at least a partial exit of fixed line assets,
given its belief of lower long term returns than the core cellular business.
There appears potential for a minor reduction of fixed line forecasts, taking them to just below EBITDA breakeven – although this may be somewhat academic if disposals/IPOs are made.
Forecasts. We are currently reviewing our forecasts in detail, and anticipate
that the additional costs of massive growth in Germany (which is generally
good news for market share) will result in a reduction of our proportionate
EBITDA forecasts for March 2001 to around £7.1-7.2 billion (ie around a 5%
reduction). We anticipate being able to confirm or increase our three year
EBITDA growth expectations of 28% pa. In terms of debt levels, we now
anticipate that Vodafone will be able to achieve low levels of net debt by year
end in the single digit £ billions – and possibly no debt or even net cash if a
disposal of Infostrada is made, along with an IPO of Arcor. We expect
therefore to be able to reduce our net interest burden estimate for Vodafone,
potentially allowing for an upgrade of pre-tax, pre-goodwill forecasts. We will
revert with full details when our modelling is complete.
Attractive valuation. Vodafone is currently trading at around 25x March 2001E
EBITDA for 28% pa or better three year EBITDA growth – or less than 1x
forward growth. Given that Vodafone is the leading player in the market, we
believe a rating below that of its quoted pure play peers undervalues the
global market leader significantly. Vodafone is trading around our current 280p
no data valuation, and well below our 465p with data valuation.
Strong Buy. The market is clearly concerned about the potential overhang of Hutchison’s remaining 3.4% stake in Vodafone now that the lock-up on that
stake has expired. We would point out that this stake represents only around
10 days trading at current average volumes. As the uncertainties that have
surrounded Vodafone (confirmation of numbers on a combined basis with
Mannesmann, debt levels following the UMTS auctions, seeing Orange more
clearly in the valuation etc ) start to clear, we believe that the shares should
perform better. Removal of the Hutchison overhang, would, in our view, also be of significant benefit. Strong Buy, target 465p.
Vizzavi Update
Evan Newmark, CEO of Vizzavi provided an update on progress at Vizzavi.
Newmark was realistic about the progress at Vizzavi bearing in mind that it was only formed in May and received EU approval in July. Hiring, strategy development
and technology planning/building have been the major priorities to date, with
progress being made on all fronts.
The plan is to migrate existing WAP portals (based on current, incompatible
platforms – which are being sold to Vizzavi at cost) at Vodafone UK and D2 to the Vizzavi brand this autumn (France is already running the brand). The brand and brand values have been developed, and the brand will be rolled out shortly. It is
intended to be a mass-market brand, not mobile-centic The new Vizzavi platform with a common architecture and look-and-feel will be
progressively rolled out late this year and early in 2001 to UK, France, Germany
and Italy. At least one further controlled European mobile operator should be added by year end with the rest to follow next year. Newmark’s plan is to bring Vizzavi to market as rapidly as possible and add to functionality, rather than delay
launch for an “all-singing-all-dancing” product. |
