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NZ investors hungry for IPOs would flock to Vodafone listing

Friday 8th September 2017

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New Zealand investors starved of new company listings would be drawn to the prospect of Vodafone New Zealand joining the stock exchange. 

The local unit of British telecommunications carrier Vodafone Group is understood to be testing the waters for a planned initial public offering after last year's planned merger with Sky Network Television was rejected by the Commerce Commission on the grounds that such an entity would hold too much market power. While no plans have been firmed up, the Australian Financial Review reported investment bank Deutsche Craigs will be running non-deal roadshows on both sides of the Tasman for a partial listing on the NZX and ASX to raise more than $1 billion. 

Auckland-based Vodafone New Zealand was valued at $3.44 billion in the proposed tie-up with Sky TV using a multiple of 7.1 times projected underlying earnings before interest, tax, depreciation and amortisation of $481 million in the year ended June 30, 2017. Vodafone NZ's accounts for 2017 March year show the company generated ebitda of $423.3 million, although since then it's increased mobile and broadband customer numbers. 

Grant Williamson, a director of Christchurch brokerage Hamilton Hindin Greene, said the "market has been crying out for equity IPOs" and if Vodafone NZ joined the NZX, the stock would be viewed as a "utility with a pretty large market share". 

"At the end of the day, it comes down to pricing and making sure the balance sheet is not too complex and with pretty straight forward intercompany loans," Williamson said. 

Vodafone 2017 accounts show its total assets were valued at $1.98 billion as at March 31, of which $895 million was ascribed to its network, and it was holding $1.5 billion of liabilities, of which $1.01 billion was in related party loans. 

Investors will have dominant telco Spark New Zealand to use as a benchmark for Vodafone NZ, with the NZX-listed firm recently trading at $3.92, a dividend yield of 6.5 percent and price-to-earnings ratio of almost 17 times.

Still, local Vodafone head Russell Stanners and rival Simon Moutter of Spark have both noted New Zealand is a "very competitive" market, and a similar experience in Australia recently saw major player Telstra Corp pare back dividends on the earnings outlook. 

Greg Smith, head of research at Fat Prophets, said Vodafone NZ would attract local investors given it's "one of the higher quality floats in recent years" since the government's partial privatisation programme introduced three electricity generator-retailers and spurred a number of smaller listings. 

The "significant competition" in Australia might also spur investors across the Tasman to diversify into Vodafone NZ if it came to market, he said. 

Vodafone NZ is the country's biggest mobile carrier, although Smith said it's "lost ground to Spark" and that a decision by the UK parent "to extract value in the current environment market makes sense". A weak British pound adds to the case, the kiwi dollar recently trading at 55.63 British pence, compared to 30 pence when Vodafone first launched in New Zealand in 1998. 

"Given what's been happening to Sky, Vodafone probably dodged a bullet and they were probably looking at other options," Smith said. 

The Vodafone brand in Australia is run by Vodafone Hutchison Australia, a joint venture between ASX-listed Hutchison Telecommunications (Australia) and Vodafone Group.


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