After snapping up Kabel Deutschland and Spain’s Ono last year, Vodafone (LSE: VOD) is back on the hunt for acquisitions in Europe.
It has been reported that Vodafone is holding early talks regarding the purchase of Portuguese cable business Cabovisão from French telecoms group Altice. Altice is currently in process of taking over Portugal Telecom. Under the terms of the deal between and Portugal Telecom and Altice, the French company is required to divest its Portuguese businesses Oni and Cabovisão.
Cabovisão provides pay television, fixed internet access and telephony services for consumers, while Oni provides similar services to business customers. However, it’s reported that Vodafone is only interested in Cabovisão, although analysts believe that Vodafone could bid for both businesses.
The acquisition of the two companies would give Vodafone access to an additional 2m customers across Portugal. With an additional 2m customers, Vodafone’s share of the Portuguese telecoms market would jump from 10% to 16%.
Returning to growth
Vodafone’s desire to expand its presence in Portugal is part of the company’s plan to reignite its European sales.
Indeed, Europe has been a problem area for Vodafone over the past four or five years. Reversing the trend of declining sales is a top priority for the group.
Luckily, Vodafone’s drive to boost its European business is paying off. During the three months to the end of December, European sales declines slowed year-on-year.
What’s more, Vodafone’s hefty multi-billion pound investment in its European infrastructure is starting to pay off. Figures show that during the last quarter of 2014, customer demand for mobile data and 4G services across Europe increased.
Time to buy?
European service revenue accounts for around 70% of Vodafone’s group service revenue, so the region is strategically important to the company. And as Vodafone’s European sales start to stabilise, it could be time to buy the company’s shares.
Declining European revenues have held back Vodafone’s growth over the past few years. But with the European market showing signs of life, City analysts have already started to factor regional growth into their forecasts.
For example, analysts believe that as a recovery in European sales takes hold, Vodafone’s earnings per share will jump by 20% during 2017.
Moreover, after 2017 it’s believed that Vodafone’s Project Spring organic investment programme will really start to boost the company’s bottom line.
Rising earnings
It’s estimated that the improvements made by the Project Spring investment programme will customers towards Vodafone in Europe. These additional customers will increase group cash flow by an estimated £1bn per annum from 2019 onwards.
Further, the additional income generated from Vodafone’s enlarged European customer base will push earnings higher and give the company room to increase its dividend payout.
That said, with a dividend yield of 5.1% at present levels, Vodafone is already one the most attractive income stocks around.
