Vodafone Group Plc - Delivering Reliable Performance in Fixed and Mobile Technology Globally

Vodafone Group Plc (LON: VOD) is a telecommunication company, providing a range of services including mobile communication, fixed communication, unified communication, internet of things (IoT), cloud hosting and security & carrier services.

On 12^th May 2020, the company will announce its results for the year ended 31 March 2020.

Recent News
On 23^rd April 2020, the company announced that it had completed the placement of 41.7 million shares of Infrastrutture Wireless Italiane S.p.A. ("INWIT"), through its wholly owned subsidiary Vodafone Europe B.V., at a price of €9.60 per share.

On 22^nd April 2020, the Group announced that it had accelerated payment of US$200 million to Vodafone Idea. The payment was due in September 2020.

Trading Update for the Quarter Ended 31^st December 2019 - Achieved Good Growth in Africa and Gradual Improvement in Service Revenue
For the third quarter of the fiscal year 2020, the Group’s revenue increased by 6.8% to €11,750 million as compared to €10,998 million (same period of the last year) on a reported basis. The company’s revenue on organic growth basis grew by 0.8% to €9,733 million as compared to €9,153 million (same period of the last year). It was due to the benefits from the acquired Liberty Global assets. The Group has witnessed good growth in Rest of the World (Q3: 9.1%, Q2: 8.9%) organically as the company continued its recovery in South Africa.

Share price Performance

Daily Chart as at May-05-20, before the market closed (Source: Refinitiv, Thomson Reuters)

Vodafone Group PLC’s shares were trading at GBX 111.42 before the market close (at 12:47 PM GMT+1) on 5th May 2020 and were up by 1.60% versus the previous day closing price. Stock 52 weeks High and Low are GBX 169.46 /GBX 92.76.

Valuation Methodology


*Peers: Orange SA, Deutsche Telekom AG, Telefonica Deutschland Holdings AG, Telefonica SA, and Talktalk Telecom Group Plc.
*Currency Exchange Rate Taken for 1 EUR = 0.870681 GBP.

Growth Prospects
The company has expected full-year adjusted EBITDA guidance in the range of €14.8-15.0 billion.Trading is expected to remain challenging, and the growth of EBITDA may be in a low single-digit with free cash flow generation of around 5.4 billion euro. In the third quarter of the fiscal year 2020, the company grew organically as well as on a reported basis. The digital transformation is already generating a healthier experience for the clients, enhancing the differentiation, supporting growth and at the same time decreasing the structural costs.

Conclusion
In the previous year, the company announced that they are collaborating with Amazon Web Services (AWS), which would benefit its business. In most of the major European markets, the company has now secured network sharing agreements. It has made a collaboration with Virgin Media in the United Kingdom, in order to enhance the use of the network assets. The upgrade to the 5G network will cost billions in spectrum and deployment across all of Vodafone’s markets. For the European TowerCo, the company has also appointed the senior management team, which would grow its business. It is preparing for a potential IPO in early 2021.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 109.66 (as on 4^th May 2020) with single-digit upside potential based 2.99x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).

Ten Entertainment Group PLC - Second Largest Tenpin Bowling Operator, with Strong Balance Sheet

Ten Entertainment Group PLC (LON: TEG) is a Bedford, United Kingdom-based tenpin bowling operator. It has 45 centres with around 1,000 bowling lanes in the UK.

On 13^th May 2020, the company will announce its Full-Year Results.

Update (as on 23^rd March 2020) – Representing Store Closure
Pursuant to Financial Conduct Authority (FCA) request for observing moratorium, the group has temporarily shut down all its centres. The group disclosed that they currently have £20.5 million of cash balance and total liquidity stood over £25 million. The company affirmed that they are still aligned with the previous guidance (15th January 2020) regarding FY2019 Group’s adjusted EBITDA to be approximately £23.6 million. The business trading in the first 11 weeks to 15th March 2020 held steady and shown growth of 12.7 per cent in sales and 9.3 per cent on a like-for-like basis, for the same period the previous year. At that time, the Group had an undrawn RCF (Revolving Credit Facility) funds of an additional £2.8 million and a further overdraft facility of £2 million.

Share Price Performance
 
Daily Chart as at May-05-20, before the market closed (Source: Refinitiv, Thomson Reuters)

Ten Entertainment Group PLC’s shares were trading at GBX 153.50 before the market close (at 2:10 PM GMT+1) on 5th May 2020 and were up by 0.33% versus the previous day closing price. Stock 52 weeks High and Low are GBX 339.00/GBX 110.00.

Strength of the Group
The company’s pipeline of new site opportunities continues to increase with acquisitions and new developments. The group has been growing over the past 8 consecutive years on a consistent basis and financially positioned at a low level of gearing with a healthy balance sheet. However, as per trading update released on 15th January 2020 for FY2019, the company made decent progress with total sales growth of 10.2 per cent, primarily driven by investments. Furthermore, the technology re-engineering programme of Pins & Strings yielded cost efficiencies at 70 per cent of its estate.

Conclusion
In the short run, the trading is evidently affected by suspended sites in compliance with regulations to battle Covid-19 contagion. Moreover, the uncertainty about macroeconomic factors and change in consumer disposable income might impact the share of income, consumers would spend over leisure activities. The company is highly cash generative business with self-financed growth and strong balance sheet. TEG is targeting 2-4 new sites per year, developing a strong pipeline of sites through acquisitions and new developments. The group also shows strong growth in the dividend.

Over the four years (FY15 - FY19), the company’s revenue surged from GBP 52.96 million in FY15 to GBP 84.1 million in FY19. Compounded annual growth rate (CAGR) stood at 12.26 per cent.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 150.50 (as on 5^th May 2020, before the market close at 11.47 AM GMT+1).
 
 
*All forecasted data and peer information have taken from Refinitiv (Thomson Reuters).
* The “Buy” recommendation is also valid for the current price as covered in the report as on 5^th May 2020.

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