Interactive Investor

Vodafone confirms massive IPO and big dividend

The float of its Vantage Towers business has been well flagged, but we now have more detail.

24th February 2021 13:40

Graeme Evans from interactive investor

The float of its Vantage Towers business has been well flagged, but we now have more detail.

One of the biggest IPOs of the year was unveiled today when Vodafone (LSE:VOD) confirmed plans for the Frankfurt flotation of its vast European mobile phone towers business.

The listing of Vantage Towers will take place before the end of March and should prove attractive to investors wanting exposure to the roll-out of 5G services in Europe.

A promised pay-out ratio worth 60% of free cash flow will add to the appeal for income investors, with a €280 million (£241.5 million) dividend scheduled for payment in July, and the company targeting mid-to-high single-digit growth in cash flows beyond that.

For Vodafone investors, the significant proceeds from the “meaningful” minority free float will help to pay down some of the FTSE 100 index company's debt, which stood at €44 billion (£38 billion) at the end of September.

The trading of the Vantage stake should also enable City analysts to fine tune their valuations on Vodafone's infrastructure assets. Shares were today 2% lower at 127.18p, having fallen back in recent days after an encouraging third-quarter trading update at the start of February.

The IPO pricing details are still to be confirmed, but speculation this week has suggested the Vantage business could be valued at about €15 billion (£13 billion). 

Dusseldorf-based Vantage boasts 82,000 sites across 10 countries and is the number one or two largest in nine of its ten markets. Vodafone said Vantage was seeing strong “commercial momentum”, with about 1,400 new tenancies expected in the nine months to next month.

And driven by mobile data growth and the 5G roll out, Vantage is on track to build 550 new sites in the current financial year and has commitments for a further 7,100 sites by 2026.

Vodafone said: “The European tower market is in the early stages of its evolution and Vantage Towers believes that its high quality infrastructure, which offers superior locations and nationwide coverage, is well-positioned to benefit from the market's growth.”

It also noted that the commercialisation of tower infrastructure companies is still a developing trend in Europe, with substantial room for growth compared with other more mature towers markets such as in the United States.

The customer base is underpinned by its anchor tenant relationship with Vodafone, which is Europe's largest mobile operator by subscriber numbers, as well as relationships with other leading mobile operators.

Inflation-linked contracts also offer visible and resilient revenue and cash flows from its existing business with "built-in" growth.

The European focus of Vantage means Vodafone has chosen Frankfurt over London for the flotation. Towers chief executive Vivek Badrinath said: "The IPO is an important milestone and sets the foundations for the next stage of our growth within the dynamic towers industry.”

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