Key Morningstar Metrics for Vodafone Group
- : GBX 130Fair Value Estimate
- : ★★★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
On July 10, Xavier Niel acquired a 16% stake in Vodafone through his family investment vehicle Vega, from the United Arab Emirates group e&, formerly Etisalat. Niel is now Vodafone’s largest shareholder, and we expect him to push hard for a faster turnaround. We view this as a very positive development for the shares.
Why it matters: For more than three years, Vodafone’s cost-cutting plan has produced more talk than results: despite claimed efficiencies, total operating costs have been on the rise, as cost savings on one front were offset by increases elsewhere, something common across telecom firms. Niel’s experience is a strong match for Vodafone: he built Iliad into one of Europe’s most cost-efficient telecom operators, and more recently turned around Tele2.
- Vega’s press statement signals to us that Niel’s team is ready to get operationally involved, mentioning Vodafone’s potential to unlock value and Vega’s operational know-how. It is highly unlikely Niel has made a £4.6 billion investment just to become a passive Vodafone shareholder, and we expect operational involvement. Niel ran a very similar playbook at Tele2 in February 2024, when he bought a 27% stake from an anchor shareholder, introduced four new board members, a new CEO, and pushed Tele2’s good-enough cost-cutting plan into an exceptional one. Since Niel’s entrance, Tele2 shares have appreciated 100%.
The bottom line: We raise our fair value estimate to GBX 130 from GBX 100 as we increase our terminal adjusted EBITDA-after-leases forecast by 200 basis points to 29.5%, assuming Vodafone launches a more aggressive cost-cutting plan in the future.
- Vodafone’s valuation is still depressed, trading today at 3.7 times enterprise value/EBITDAaL versus a 7 times European peer average. Our new GBX 130 fair value estimate implies a 4.4 times forward EBITDAaL multiple. While Vodafone arguably deserves a below-average multiple, given its conglomerate nature, the cheap valuation looks undemanding if operational change occurs.
