Vodafone and Liberty Global last year failed in a plan to swap assets, but analysts at Jefferies believe such a deal would still be worthwhile.
In a note cutting their target price for the mobile phone group from 265p to 245p, the Jefferies analysts said:
We continue to believe that Vodafone needs a Liberty transaction to secure its long-term prospects. Last summer we took the (then) anti-consensus view that Vodafone is the more likely acquirer for reasons for regulation (stated EC goal to strengthen ‘European champions’), capital structure and complexity.
Whilst Liberty is not trading at levels likely to encourage its management to resume negotiations with Vodafone, we took comfort from its post-first quarter 2016 commentary that it would not be inclined to execute on potential mobile acquisitions that would rule out other potential deals.
Moreover, we think that Vodafone’s approach of putting more of its AMAP [Africa, Middle East and Asia Pacific] investments within listed vehicles (New Zealand post-closing of merger with Sky, India post-prospective IPO, Vodacom already listed) could serve two useful purposes: creating a more transparent rump value for Europe and potentially a cleaner path to exit the AMAP businesses in due course.
Liberty’s John Malone had already said his company had no interest in Vodafone’s Indian and South African operations.
Vodafone shares are currently down 2.15p at 214p while Sky, where Jefferies has cut its price target from 915p to 895p, has fallen9.5p to 878p. Jefferies said:
In spite of underperforming the FTSE 100 by 16% year to date, Sky continues to trade at a 4%/13% premium on calendarised 2016/17 PE. Operating headwinds have become more apparent: last quarter’s step-up in churn, BT’s ambitions in mobile/TV, 80% hike in Bundesliga rights costs, Vivendi purchase of Mediaset Premium. But consensus forecasts still imply expansion in Sky’s group operating margins over the long run. We see credible growth initiatives (mobile, Sky Q) but believe they will be capital (and margin) intensive to execute.
