1. Most Discussed
  2. Gainers & Losers

Vodafone

  1. Grant62

    4,772 posts.
    Earlier this week, there were 2 events (one in Europe, and the other in the US) which very soon will determine the extent to which Vodafone remains a competitive force here in Australia.

    In Europe, Ericsson announced a Q1 loss of 2.97B/SEK (or ~$530m) and cautioned against an improving world outlook in telecoms (particularly in regards to its largest global customers, Vodafone and Telefonica).

    In the US, AOL Time Warner produced a Q1 loss of US54.2B (AUD99.5B), including a US54B writedown in the carrying value (ie: goodwill) of its merger with AOL.

    Both of these unconnected events will quickly shape the results for Vodafone in the months to come.

    Overnight, for instance, Vodafone announced its KPI results for Q4, to 31st March 2002 (ie: Vodafone operates on a March balancing date).

    Its full year results, however, will be announced in late May.

    Since Vodafone's KPIs have been announced, Vodafone's share price has fallen further to 112p. This contrasts sharply to a >160p share price earlier this year, and the 178p average share price that Hutchison Whampoa secured recently on forwaraded selling of >2% of its shareholding in Vodafone. Overall, HWL owns 2.95% of VOD, of which 2% has been forward sold.

    Vodafone, however, was also responsible back in 2000 for acquiring the Mannesman business in what was then the world's largest hostile takeover.

    On the back of AOL Time Warner's Q1 writedowns, however, its is likely that Vodafone, as part of its full year results announcement in May, will announce a huge loss, to accompany goodwill writedown's in the forward carrying value of the Mannesman business.

    Originally, the Mannesman business was acquired for GBP101B, and came quickly on top of the GBP60B AirTouch acquisition, and the AUD45B spent so far by Vodafone in acquiring 3G spectrum throughout Europe. More recently, however, Vodafone has also spent many more billions in acquiring Japan Telecom (or J-Phone).

    According to today's Financial Times (25/04) from London, "Vodafone shares have been hit further by worries that it could be forced next month to announce record write-downs on some acquisitions .... Since there is also a lack of visibility about future revenue growth, investors are sgetting nervous....'Write-downs will have a symbolic impact but the real worry is future revenues', says one Vodafone shareholder.'The concern is about where future revenues are coming from. The jury is styill out on this one, which is causing many shareholders to assume the worst'."

    Again, according to the Financial Times, "Vodafodne is .... pinning virtually all its growth hopes on new data services. Later this year it will introduce a new form of text messaging service in many of its markets, allowing users to send electronic pictures between handsets. That can be achieved using existing networks but its main hopes are pinned on so-called 3G data services".

    According to the Financial Times, Vodafone, in announcing its Q4 (to 31/3) KPIs, "revealed that its global subscriber base had increased by just 1.3m in (Q1/02), almost a quarter of what it achieved in the (Q4/01). Some analysts predict that subscriber growth in the next quarter will be even slower".

    So, what are the implications of all these events for Vodafone here in Australia.

    Firstly, to re-cap:
    1)
    Vodafone's primary equipment vendor has confirmed slowing equipment sales, including to Vodafone meaning that Vodafone is spending less and less on CAPEX (particularly, on advanced 2G, 2.5G (or GPRS) and on 3G).
    2)
    AOL Time Warner's Q1 results have paved the way for Vodafone to announce world record losses in late May (ie: primarily writedowns in the carrying value of Mannesman, AirTouch, Japan Telecom, etc).
    3)
    Vodafone's share price is suffering badly (even though HWL has forward sold at >50% premium to current share prices and is well positioned to profit further from this decline).
    4)
    Vodafone is under pressure to further cut its CAPEX spending and /or continuing market presence in various markets, including in Australia, where CAPEX spending is minimal.
    5)
    The current carrying value of Vodafone's market in Australia is likely to be <$2B (down from >$5 -6B just 6 -8 months ago).
    6)
    Vodafone is continuing to lose market share in Australia, whilst competitors such as Optus, HTA and Telstra are all aggressively pursuing market share (Optus, through fierce discounting, HTA through its CDMA differentiating and 3G forward positioning, and Telstra through its "safe harbour" strategy.
    7)
    Vodafone is likely to retreat from underperforming markets in the months to come, with Australia being one such market at risk. This suggests either a declining relevance for Vodafone in Australia (assuming that it stays here), or some form of infrastructure /customer sharing arrangement (ie: in 3G, etc) if it stays.
    8)
    Australian ARPU for Vodafone fell to $57 during Q1/02, down from $58.40 in Q4/01. In contrast, Telstra's ARPU was down to $50 in H2/01, Optus' was ~$52 and HTA's ARPU was $69 (up from $66 @30 June).
    9)
    With the exception of HTA, all other ARPUs continue in decline.
    10)
    Unlike all other major carriers, Vodafone neither has a strong and supportive parent with "free cash flow" available, nor alternative base-line businesses which are essentially cash-flow proof. In Telstra's case, they have the benefit of incumbency and FCF in their basic telephony business. HTA has a strong and supportive parent in HWL, with its strong suite of businesses covering property, ports management, retail, energy, utilities, etc, and very strong FCF. Optus does not have a strong parent, but has a strong underlying business here in Australia, particularly focused towards the business end of the market. Vodafone, however, has nothing more available to it than the 2G wireless business. If then, local and global ARPUs for Vodafone are in decline, then Vodafone's underlying business presence will coxme under ever increasing threat here in Australia 9as well as elsewhere).
    11)
    The likelihood of Vodafone remaining intact in Australia is unlikely going into the future. The likely, however, of Vodafone teaming up with another major player in the Australian market, either on an exit basis, or on an infrastructure sharing basis, is quite high.

    No matter which way you look at it, telcos in Australia are under increasing pressure which will continue in force until Vodafone's future here is finally determined, T3's outcome is finally resolved, and HTA's 3G business is finally launched on acommercial basis.

DISCLAIMER:
Before making any financial decisions based on what you read, always consult an advisor or expert.

The HotCopper website is operated by Report Card Pty Ltd. Any information posted on the website has been prepared without taking into account your objectives, financial situation or needs and as such, you should before acting on the information or advice, consider the appropriateness of the information or advice in relation to your objectives, financial situation or needs. Please be aware that any information posted on this site should not be considered to be financial product advice.

From time to time comments aimed at manipulating other investors may appear on these forums. Posters may post overly optimistic or pessimistic comments on particular stocks, in an attempt to influence other investors. It is not possible for management to moderate all posts so some misleading and inaccurate posts may still appear on these forums. If you do have serious concerns with a post or posts you should report a Terms of Use Violation (TOU) on the link above. Unless specifically stated persons posting on this site are NOT investment advisors and do NOT hold the necessary licence, or have any formal training, to give investment advice.

Top