Vodafone Group Plc VOD is planning to merge its tower infrastructure in Italy with Infrastrutture Wireless Italiane S.p.A. (INWIT) to enhance return on capital invested, per Reuters. Headquartered in Milan, INWIT is the tower unit of the Italian telecommunications company, Telecom Italia S.p.A. TI.
The deal, expected to be signed by this summer-end, is part of Telecom Italia’s three-year strategy to trim its more than €25 billion ($28.34 billion) debt. The move would also include a partnership to enable faster deployment of fifth-generation mobile phone services over a vast geographic area at a lesser cost.
Reportedly, the combination would leave Vodafone and Telecom Italia with equal shareholdings and governance rights. Notably, Vodafone and Telecom Italia inked an agreement in February to assess the combination of their 22,000 telecom towers in Italy under a single operation.
In addition, Vodafone is eyeing to reduce its huge debt burden. It has entered into an agreement to divest its New Zealand business to a global consortium of investors, subject to regulatory approvals. At the same time, the company has decided to reduce its quarterly dividend payout to create sufficient financial headroom and focus more on the core European markets.
The company also announced that it intends to reduce its quarterly dividend to 9 eurocents per share, representing a 40% year-over-year decrease. It expects the lower dividend payout to help it reduce its massive debt burden, which swelled to more than €27 billion as of Mar 31, 2019. This, in turn, is likely to facilitate the company to de-lever to the low end of its targeted 2.5x-3.0x leverage range in the next few years.
Shares of Vodafone have incurred an average loss of 16.7% compared with the industry’s decline of 5.5% in the year-to-date period. It remains to be seen whether such diversified moves can help boost the company’s profitability in the days to come.
Currently, Vodafone has a Zacks Rank #4 (Sell). A couple of better-ranked stocks in the broader industry are PLDT Inc. PHI and Deutsche Telekom AG DTEGY, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PLDT is currently trading with a forward P/E of 10.2x.
Deutsche Telekom has long-term earnings growth expectation of 9%.
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