Vodafone remains the great telco hope trade, with investor excitement that a break-up could release sum-of-the-parts upside and trigger a large share buyback.
However, breaking up can be hard to do, in life as in telecoms. The merger options on the table ultimately mean exchanging profitable businesses for stakes in (at least initially) less profitable ones. We show how Vodafone''s FCF is likely to continue to decline as it exits or merges its major units in Spain, the UK and Italy. Current consensus for FCF and dividends do not reflect this, in our view. Coupled with our more cautious view on Germany, we are 15% below consensus FCF in 2024 and lower the stock to Underperform with a new TP of 68p.
Also see our accompanying reposts published today.
TELECOM OPERATORS OUTLOOK: 10 themes for 2024: The call is breaking up
TELIA: Margin relief - upgrade to Neutral
