Download Vodafone Group

Media/Telecommunications Coverage Group
Company Overview
• Top mobile provider in telecom industry
• Split across two geographic regions: Europe and AMAP (Africa,
Middle East, and Asia Pacific)
– 438 million mobile customers in 26 countries
• Services include broadband internet, mobile, business enterprise
solutions
– Mobile is the majority of the business, 81%
– 45% smartphone penetration in Europe, increased by 7% in
2013
Company Stock
Ticker
VOD:LN, VOD:AR
Price
$36.47
Market Cap
$96.42b
Dividend Yield
5.5%
P/E
61.0733
Management
• Vittorio Colao - CEO (2008-present)
– 19 years of experience with the company
in various markets
– Managerial role in other media
companies
• Nick Read – CFO (2014-present)
– 14 years at Vodafone with chief officer
roles in the Europe and AMAP regions
• Stephen Pusey CTO (2009-present)
– 9 years at Vodafone after 20+ years in
other telecomm companies including
Nextel
• Overall: young team with relevant
industry experience and company
experience from all its major markets
Telecom Industry Overview
Global Revenue Projections
European Telecom Market
• Competitors are local and typically restricted to a single country
– e.g Telefonica in Italy, Orange in France, and DTE in Germany
– Vodafone is the only major player straddling multiple
• EU regulations, language barriers present significant barriers to
entry in new markets
EU Red Tape
Alumni Homecoming Reunion 2009
10/24/09
Stagnating European Market
Stagnating European Market
VOD vs VGK Europe Index
VOD vs Competitors
Thesis
• Market has overestimated impact of European downturn and
unfavorable tax rulings on its business
• Uniquely hedged international position positions it to capture
opportunities in rapidly growing Indian market and weather
European stagnation vis-à-vis competitors.
• Cash-flows from Asia will compensate for lags in European
investment and infrastructure construction.
Revenue Breakdown
Breakdown of Revenue by Product Stream
Other
6%
TV
12%
Unbundled Mobile
36%
Broadband
10%
Bundled Mobile
36%
Growth Factors - India
• Vodafone is the largest European mobile provider in India, and
is the 2nd largest provider overall (~23.89%)
• Modi government is championing reforms to provide
government-sponsored wireless access to 500 million people in
rural India.
– Company product focus favors expansion into low infrastructure
• High profile unfavorable tax ruling makes Vodafone an attractive
partner for the Indian government.
– In the latest quarter, service revenue grew 15.0% YoY excluding currency
impacts
Growth Factors - India
• Expanding position in India hedges against further stagnation in
Europe
– At current growth rates, by 2018, a 3% growth in the Indian Market
would offset a 10% decrease in European revenue.
• Enables cash flows that European competitors don’t have access
to.
Vodafone Revenue Growth
Revenue Growth Breakdown by Region (2013-2014)
50
45
40
35
30
25
20
15
10
5
0
India
UK
Germany
Italy
Africa
Growth Factors - Tech
• M-Pesa
– Launches “M-Pesa” mobile payment system - used by
millions of individuals in emerging markets, large player in
the increasingly vital mobile payment space
– Business partnership between M-Pesa and MTN Money
• Exclusive partnership between VOD and Dropbox to provide
information management services in AMAP
– High growth industry, 44% CAGR through 2019
Growth Factors – Europe LTE
• Project Spring
– 2 year investment of 19 billion pounds to grow in four areas:
• Consumer Europe
– Smartphone penetration has increased by 7% and
Vodafone is still in the top 2 mobile operators in most
European markets
– Unified communications in all key European markets
VOD as a Hedge - FX Volatility
• Outlook on Euro is extremely uncertain
– Volatility on German bonds is the highest it has ever been in the past 5
years
– Dollar just hit 4 month-low after rapid strengthening (GS predicted a
further 12% increase).
• However, the surges of the Dollar (Jan – March 2015) are over
– ECB QE is not indefinite
– Weak economic indicators for
the American Economy
Risk – Lags in European Investment
Investment in 4G LTE Infrastructure in Europe (through Q12015)
8
7
6
5
4
3
2
1
0
Deutche Telekom
Orange
Vodafone
Telefonica
T-Mobile
Risks
• FX risk with strengthening dollar
– Aggressive EU QE policy has led to a strengthened dollar
– GS estimates dollar will strengthen a further 12% against the currency basket
– A 3% decline in the sterling would reduce EBITDA by £0.5 billion.
• Political factors
– Numerous tax disputes in India (wrt several billion dollars)
– Increasing regulation in EU - Governments are mandating that wireless firms
lower interconnection and roaming fees, hurting sales and margins.
Valuation
• Modeled using fairly conservative assumptions
– In all cases, assumed tax decisions were unfavorable
– In Bear/Base case, increased EU regulation of data charges
– Base growth rate taken from slump in 2009
• DCF Valuation
– Bear – $36.23
– Base – $39.45
– Bull - $43.76
Target
• Time horizon
– 24 – 30 months
• Target
– $41.50
• Exit Conditions
– Political (Modi Budget)
– Regulatory (EU)