VOD value at $12.7B by the market??? Unreal??? should be $35-$40
Hidden value in a 45% stake in Verizon Wireless
What is missing in all those numbers above is the potential value of Vodafone’s 45% stake in Verizon Wireless. A 45% stake in Verizon Wireless would equal £20.18 ($30.4) billion in revenue, £7.7 ($11.6) billion in adjusted EBITDA and £4.87 ($7.34) billion in net profit. David Einhorn, in the letter to shareholders, wrote that Verizon Communications, a 55% controlling owner of Verizon Wireless, had starved Vodafone by restricting Verizon Wireless from paying dividends for years. However, unlike Verizon Communications, Vodafone did not rely on Verizon Wireless’ contributions. According to Deutsche Bank estimates, if Verizon Wireless is valued at 8 times EV/EBITDA, Vodafone’s stake in Verizon Wireless might be worth $120 billion. Therefore, at the current price, after excluding the value of the Verizon Wireless stake, Vodafone along is worth only nearly $12.7 billion.
Foolish Bottom Line
Vodafone seems to be quite cheap at the current price, thanks to its 45% stake in the growing and profitable cash cow Verizon Wireless. If Verizon Communications seriously considers a buyout for Verizon Wireless, Vodafone’s potential value would be unlocked immediately.