Vodafone group Plc - telecommunications

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MASTER IN FINANCE

THIS REPORT WAS PREPARED EXCLUSIVELY FOR ACADEMIC PURPOSES BY MARIA BEATRIZ RODRIGUES AND MARTA DE LA FUENTE,

MASTER IN FINANCE STUDENTS OF THE NOVA SCHOOL OF BUSINESS AND ECONOMICS.THE REPORT WAS SUPERVISED BY A NOVA

 Vodafone had a down moment for the past 3 years in terms of revenue growth, -2% in 2018, yet it is believed that the company will reverse the current trend and be able to grow revenue around 1% in the future.

 The group is one of the main players in the Telecom industry and has the second most valuable brand in Europe. The industry overall spending is expected to grow in the next years at a CAGR of 1%, as demand increases. However, an intensive competitive environment presents challenges to operators.

 One of the main concerns with the company’s current strategy is the ability to continuously increase dividends in the future as earnings might not be sufficient to cover it.

Company description

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ANUARY

2019

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UENTE beatriz.rodrigues@novasbe.pt

A transforming Industry

Vodafone a leading player in innovation

Recommendation: BUY

Price Target FY20: £2.65

Price (as of 4-Jan-19) £1.57

Reuters: VOD.L, Bloomberg: VOD:LN

52-week range (£) 1.43 - 2.40 Market Cap (£m) 41 699 Outstanding Shares (m) 26 720 Dividend Yield 8.52% Source: Bloomberg Source: investing.com

(Values in € millions) 2018 2019E 2020F Revenues 46 571 46 317 46 265 EBITDA 14 737 14 234 14 525 Net Income 2 788 -1 083 2 630 EPS 0.10 -0.04 0.10 Dividend per share 0.1507 0.1537 0.1537 EBITDA margin (%) 32% 31% 31% Source: Vodafone Annual Report 2018; Analyst estimations

30135@novasbe.pt

 The model gives a target price for the YE 2020 using a DCF model along with the forecast of revenues per segment with a WACC of 4.16% and a terminal growth rate of 0.033%.

 Vodafone is considered a BUY given the target price for the fiscal year-end 2020 of £2.65 (FX Futures EUR/GBP currency exchange rate of 0.91, March 2020). This corresponds to an upside of 69% compared to the current market price of £1.57. Having so, we strongly believe that Vodafone is currently undervalued.

Vodafone is one of the market’s leading companies operating in the Telecommunications’ industry; it provides many services from mobile, fixed broadband, TV and voice with operations spread along two main business segments: Europe and Africa, Middle East and Asia Pacific (AMAP). Headquartered in London, United Kingdom, it is part of the FTSE 100 market index.

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VODAFONE GROUP PLC COMPANY REPORT

Company overview

Integrated in the Telecommunications’ industry, Vodafone is currently headquartered in London, United Kingdom. From July 17, 1982 the company has managed to build a strong brand recognition in its two main business segments: Europe and Africa, Middle East and Asia Pacific (AMAP).1

As of 2018, the firm has its operations spread along 25 countries: UK, Germany, Spain, Italy and Rest of Europe - Albania, Czech Republic, Germany, Greece, Hungary, Ireland, Malta, Portugal, Romania; Vodacom Group (South Africa, Tanzania, Democratic Republic of Congo, Mozambique, Lesotho, Kenya (associate)) and other AMAP - Egypt, Ghana, New Zealand, Turkey. Additionally, the enterprise owns Joint Ventures in the Netherlands (VodafoneZiggo Group Holding B.V.), Australia (Vodafone Hutchison Australia Pty Limited) and in India (Indus Towers Limited) – Exhibit 1.

Vodafone offers a variety of products and services to individual customers and enterprises ranging from mobile and fixed broadband to TV and voice. A major part of its business also includes the Internet of Things (IoT) – a system that connects everyday devices through a specific network without the need to have human interaction throughout the process - together with its Internet Protocol – Virtual Private Network (IP-VPN); the latter includes cloud and carrier services to multinationals. Additionally, the company offers an M-Pesa service - providing mobile money transactions within its own platform - and maintains agreements with Mobile Virtual Network Operators (MVNOs) for whom the company rents out wireless capacity. Nonetheless, in order to deliver some of these services, Vodafone acquires spectrum licenses enabling the use of radio frequencies.

In past years, fixed service lost its impact which problem the company overcame by providing bundle offers of mobile, fixed and content services. Also, it should be highlighted the company’s leading role as a mobile operator with a 62.4 million mobile contract customer base in Europe. Moreover, the Group owns the largest

fixed Next-generation Network (NGN) footprint which services are able to

market 65% of total European’s footprint, covering in 2018 around 107 million households (Exhibit 2 and 3) - including VodafoneZiggo.

In the last fiscal year, Vodafone’s growth was mainly driven by opportunities in

emerging markets - motivated by data penetration, development of financial

services and growing digital - especially reflected in Vodacom’s annual growth

1_{Vodafone Annual Report 2018}

Exhibit 1: Group Service Revenues per segment

t 66% CONSUMER 29% ENTERPRISE 5% OTHER

Exhibit 2: NGN self-build households passed (in millions)

Exhibit 3: NGN wholesale households passed (in millions)

Exhibit 4: Mobile Market Share (%)

Exhibit 5: Fixed Market Share (%)

Source: Vodafone Annual Report 2018

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revenue of 8%. Reinforcing, it must not be dismissed the momentum in fixed

broadband and convergence (Exhibit 5) – adding 1,339 and 754 thousand new customers, respectively - collectively with the success of IoT. Vodafone Business segment’s service revenue grew 0.9% in the year, partially offset by roaming regulations. Enterprise represents 29% of the Group’s service revenue with Internet of Things being one of the fundamental points of differentiation in this sector – counting with more than one million new SIMs per month from IoT services adding to its 68 million network; notwithstanding, advantages have been arising from vertical integration of financial and automotive services.

Overall, Vodafone has on average 103,564 employees distributed along its geographic business areas. The team has been devoted to the progress of the company achieving Group revenues of €46.571 billion just in 2018. Combined with the current cost efficiency programme – which will be further analysed - and a strong financial performance, the company was able to maintain an increasing organic growth in adjusted EBITDA of 11.8%, compared with 5.8% in 2017.

Shareholders’ structure

To begin with, Vodafone’s board has been going through a main succession plan followed by the resignation of the previous Group CEO Vittorio Colao on October 1st_{, 2018 - after a 10-year mandate of integrity inside Vodafone. He was}

succeeded by Nick Read (former CFO) with Margheritta Della Valle – Deputy CFO - taking the role of the latter. A major review has been made to the remaining board to ensure its effectiveness and alignment of skills and experience with the firm’s goal. Notwithstanding, Gerard Kleisterlee maintained his position as the Chairman of the company.

Company’s ordinary shares are traded both in the London Stock Exchange and on NASDAQ – traded in the form of American Depositary Shares (ADSs) issued by Deutsche Bank, each representing ten ordinary shares. The majority of the Group’s shareholders come from Europe and UK, even though a significant 43% is held by North American investors (Exhibit 6).

In what concerns to the company’s shareholder structure, no significant changes are disclosed by the company even after the succession plan and internal reorganisation of the Board. Having so, the company is essentially divided into 4 different groups: Institutional investors, Treasury shares hold by the company, Private company ownership and General Public holdings.

Institutional ownership accounts for approximately 85% of Vodafone’s shares, representing the major portion of the company. This creates a comfortable environment for shareholders to invest as bull/bear traps are not expected since

Vodafone is the only telco

that is a Tier 1 supplier to

automotive original

equipment manufacturers

(‘OEMs’), with customers

including eight of the top ten

car manufacturers globally.

Exhibit 6: Ownership location

Source: Vodafone Annual Report 2018 Source: Vodafone Half Year Results 2019

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Information on Dividends and shares

2017 2018

Dividend payout ratio -61% 142%

Dividend per share (€) 0,1477 0,1507 Number of shares attributed to shareholders (million) 26 622 26 676 Amount of dividends paid (€m) 3 932 4 019 these trends usually arise from estimated changes by these valuable investors. Secondly, there is 14% ownership from General Public which is held by essentially retail investors – its size allows for a noteworthy power inside the company if collectively considered. Thirdly, with approximately 0.1%, there is Private Company Ownership which does not have a significant impact on the firm’s business owing to its small stake. Finally, it also has to be considered the inside ownership which accounts for approximately 9% stake.

BlackRock Investment Manager comprises one of the biggest institutional shareholders with approximately 6.9% ownership. However, apart from BlackRock, Deutsche Bank owning 17.79% of ordinary shares as a custodian of the American Depositary Receipt (ADR) programme and Bank of New York Mellon which held the same programme prior to February 2017, no shareholder has ever held more that 3% of the company in the past four years.

As a representation of the company’s confidence in its potential to drive up free cash flow, over the past three years, it has been distributing increasing dividends per share. Just in 2018, €3.9 billion were paid – 15.07 eurocents per share for the year - embracing a steady annual growth of 2%.

This signals a positive financial health and confidence in future performance to investors. Notwithstanding, Vodafone has disclosure its intention to keep the growth in dividends even though the analyst questions the sustainability of the company’s dividend policy in the forecoming years. It is believed that it will be necessary to stop dividend growth as it is not covered by the company’s earnings but by its free cash flow, which might turn out to be too tight going forward. As such, it was considered a target range to estimate dividend growth: 2.5x-3x Debt to EBITDA was used stopping dividend growth when the limits are surpassed. Exhibit 7: Information on Dividends _{Information on Dividends and shares}

2017 2018

Dividend payout ratio -61% 142%

Dividend per share (€) 0,1477 0,1507 Number of shares attributed to shareholders (million) 26 622 26 676 Amount of dividends paid (€m) 3 932 4 019

Source: Vodafone Annual Report 2018

Core Programmes

Vodafone has in course three main programmes: Network Leadership, Customer eXperience eXcellence (“CXX”) and Fit for Growth.

Firstly, Network leadership is built on the goal of creating a strong and differentiated network. To do so, the firm has been investing in its IT infrastructures and relying on its own cable, fibre and strategic partnerships.

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Getting 5G network ready is a major concern. As such, a massive MIMO (multiple input, multiple output) network of antennas is being deployed enabling the evolution of a much more efficient radio signal transmission. Closely, one antenna is now assigned to a specific user or group instead of being transmitted everywhere, creating a more reliable service with less interference and larger spectrum capacity. Additionally, the deployment of fibre deeply into households has allowed the expansion of data speed and network capacity which is expected to reach 12.7 million households with 1 Gbps by 2020, compared with the current 100 Mbps.

Secondly, it has the Customer eXperience eXcellence (CXX). This initiative represents Vodafone’s core marketing strategy. In fact, the firm’s motivation towards customer satisfaction is key and why the company links several of its employees’ annual bonuses on Net Promoter Scores (NPS). Built on a “CARE” framework (Exhibit 8), its focus is drove towards the client: promising extra security protection, guarantees, a personalised service (conquered through Big data analysis), reward programmes within the My Vodafone app and a flexible manner of managing their service, equally supported by the latter. Vodafone has managed to build a relationship based on trustworthiness together with a 5% year-on-year rise on penetration over digital channels – 60% of its customers already use the company’s application.

Thirdly, there is the Fit for Growth line-up designed to drive up operating margins via reduced net operating costs along the process. This is being captured through the centralisation of procurement, share of service centres in low cost regions, improvement of sales channel efficiency, creation of a standardised network design and zero based budgeting (“ZBB”) initiatives. The last two total cost savings of €580 million over the past three years (Exhibit 9). Notwithstanding, there is a realised success reflected on the cost efficiency programme that together with the commercial momentum is enabling Vodafone to take advantage from the approximate 60% year-on-year increase on data traffic demand (Exhibit 10) reflected in the past two fiscal years. Overall, this was accomplished due to a “cost teardown” – programme enabled the improvement of operational margins (Exhibit 11) combined with reported EBITDA growing at higher levels than service revenue (Exhibit 12).

Finally, Digital Vodafone is a core part of the company’s strategy helping to boost others like CXX and Fit for Growth. The goal goes through building the best digital experience at the customer – relying on digital channels to create an easy, instant and personalised interaction, supported on data analytics and automatization of processes in IT – moving from “mostly human to mostly digital”.

NPS

Maintained leading position in

Exhibit 8: “CARE” Framework

Exhibit 11: Operational Margins (%) Exhibit 10: Demand for data Exhibit 9: Savings from Digital Vodafone

Exhibit 12: Faster growth in Adj. EBITDA than Service Revenue

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Strategy

Recent updates on the company’s strategy are driving emphasis towards increasing the on-net penetration with existing customers (Exhibit 13) in order to drive down churn rates. The major opportunities are now concerning digital transformation and asset utilisation.

Deepening customer engagement is sustained by three drivers involving different approaches: Europe consumers, Vodafone Business and Emerging consumers. Concerning European consumers, they are inserted in mature markets meaning that it is already saturated and there is not a lot of potential to grow the customer base. Thus, strategy will focus on existing consumers: upselling to them while lowering churn rates and strengthening relationships. On the other hand, Vodafone Business is expected to grow with the idea of industrialising IoT supported by the expansion from automotive to digital buildings, healthcare and logistics. Revenue streams in emerging markets are projected to come from digital and financial services (e.g. M-Pesa) and the opportunity from the already mentioned increasing growth in data. Figures illustrate an opportunity giving the low percentages: 22% of mobile costumer base from 4G services and 43% smartphone penetration.

Digital transformation is built on the idea of creating a much simpler business model from price plans, products and services to optimisation of internal processes. As emphasised by the firm’s CEO Nick Read, the main advantage that the company will take from investing in 5G is the underlying cost reduction, with 80% coming from savings on radio cost delivery (Exhibit 14). Additionally, savings are expected to exceed €1.2 billion just in net operating expenditures by the fiscal year of 2021.

Finally, looking at projections from asset utilisation, advantages are expected from M&A synergies and the best use of the company’s 58,000 European towers; focusing on the latter, the company wants to build a new venture by the name of Virtual TowerCo which sole purpose is effectively managing and increasing the usage of its infrastructure by creating a shared network. This would enable a much smoother deployment of 5G networks, which will require many more sites, and established lower costs by monetising its towers. The company came down to an estimation of €8 billion reduction in costs from this strategy. Recapping, the company wants to implement a strong capital allocation discipline so that the higher return opportunities are undertaken including strategic partnerships and delivering synergies on new and existing investments – VodafoneZiggo, Merger in India and approval of Liberty Global’s acquisition - deprioritising other areas.

The cost cutting

opportunity alone for

European telecoms has

been estimated to be as

much as €60 billion.

We have a strong track

record of delivering or

exceeding targeted cost

and capex synergies on

prior deals.

Exhibit 13: Vodafone’s on-net penetration in European market

Exhibit 14: Relative radio cost delivery

Source: Vodafone Half Year Results 2019

Source: Vodafone Strategic Report 2018

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Economic Overview

Vodafone has a very wide market presence, thus it is paramount to understand the overall state of the economy in the main markets, together with understanding the impact of macro factors in demand for Telecommunication services in order to build the basis of this analysis.

Many studies have been conducted to estimate the impact of a change in price or income on costumers’ choices regarding telecom services. Cadman and Dineen2

(Exhibit 15) analysed 28 observations of cross-sectional data to evaluate the sensitivity of fixed broadband services. The model concludes that the long-run price elasticity of demand is relatively inelastic, retrieving a coefficient of -0.43%, i.e. the demand does not seem to be significantly affected by the price. However, income elasticity of demand is stronger - meaning that a 1% increase in wealth would lead to 0.78% increase in demand. Additionally, “years since launch”, together with its square, was inputted in the model. These allowed for an important conclusion: non-linear growth in broadband, i.e. diminishing growth rate is expected with increasing service penetration.

A lack of data regarding mobile services, drove the need to base this analysis on a combination of factors that characterize the market: penetration rate and mobile phone dependence. Mobile devices are a feature of the modern world such that penetration is expected to reach 4.78 billion users in 2020 (Exhibit 16), with a rate close to 70%. However, in developed economies, penetration rate already accounts for 90% of population. Moreover, mobile dependency is increasing

significance: according to Deloitte3_{, more than 30% of consumers check their}

phone in the first five minutes after waking up in the morning (Exhibit 17) and 20% check their phones at least 50 times a day (Exhibit 18).

Nowadays consumers already perceive mobile phones as an essential good. In

2014, The Telegraph4_{, United Kingdom, reported that:}

“The high take-up of essential communication services shows that, in most cases, cost is not a barrier to use. Some 95 per cent of households have at least one mobile phone, 84 per cent have a landline and 82 per cent an internet connection.”

Combining all the factors abovementioned, one can conclude that the increasing dependence on mobile services is reducing sensitivity to income changes

however it still has an impact on customers’ choice, especially regarding fixed

2_{Price and Income Elasticity of Demand for Broadband Subscriptions: A Cross-Sectional Model of OECD Countries,}_{Richard Cadman,}

Chris Dineen, 2008

3_{Global mobile consumer trends, 2nd edition, Deloitte 2017}

4_{“Mobile phones and internet now ‘essential’”, by Matthew Sparkes, The Telegraph, July 2014}

Exhibit 16: Mobile phone users worldwide 2015- 2020

Exhibit 17: First access with in 5 minutes

Exhibit 18: Percentage of people who access 50+ times in a day

Exhibit 15: Cadman and Dineen results

Source:Richard Cadman, Chris Dineen, 2008

Source:Statista

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broadband services. Thus, predicting the future state of the economy was

considered of great importance.

The International Monetary Fund (IMF)5_{reports that developed economies grew}

0.6pp more in 2017 compared to 2016 which was essentially explained by an increase in investment spending. Emerging markets increased their growth by 0.4pp in 2017 primarily due to an acceleration in private consumption (Exhibit 19).

Moving forward into developed economies, it is expected a global slight increase in GDP to 3.9% in the medium term (compared to 3.8% reported in 2017). This is based on a strong momentum, positive market confidence and the repercussions

of the United States expansionary fiscal policy. On the other hand, the euro area

is expected to grow at 1.4 % - damaged by low productivity together with ineffective reform efforts and poor demographics - while emerging markets are expected to stabilise at about 5%, mainly reflecting the strong economic performance in Asia.

In close detail, developing Europe, reported a GDP growth of 6% in 2017 but it is projected to slow down to 4.3% and 3.7% in 2018 and 2019, respectively. It is expected that over the medium-term, growth will stabilise around 2.2%, pushed down by demographics and low productivity. Sub-Saharan Africa is also projected to rise in 2018 and 2019 reaching 3.4% and 3.7% growth, respectively. Lastly, South Africa is estimated to strengthen from 1.3% in 2017 to 1.5% in 2018 and 1.7% in 2019. In the medium-term both regions are expected to grow at 1.8% (Exhibit 20).

Industry Overview

Together with the conclusions from the previous section, understanding how the industry is characterised is crucial to support the forecast of Vodafone’s future performance.

The telecommunications’ industry has been seeing momentous growth over the past decade mostly driven by technology which boosted demand for communications. The industry is essentially fragmented and highly competitive counting with at least four providers in each country, between international and national suppliers, giving the customer different options.

Product innovation is a fundamental investment in order to secure a strong market share. However, close substitutes and imitations will eventually arise so

5_{World Economic Outlook, April 2018: Cyclical Upswing, Structural Change}_,_{April 2018}

Exhibit 19: GDP growth (Annualised semi-annual percentage change)

Exhibit 20: Contributions to the change in Real GDP Growth, 2016–17

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telecom companies must continuously look for innovations that will make their products relatively more desirable to consumers than those of competitors. Worldwide the industry has been growing since 2016 with the development of smartphones and social media, creating new demands and pushing the industry upwards. Telecom spending is expected to grow 1% in 2019 and has been growing at a CAGR of 1%. As a whole, the industry generated more than €1 trillion ($1.6 trillion) in 2018 and it is expected to reach $1.7 trillion by 2020 (Exhibit 21).

Fixed broadband services are now the focus of telecom companies arround the world. The global spending in fixed/wireless services has been growing 2% per year going from 823 billion dollars in 2015 to the expected 918 billion dollars in 2020, promoted by both companies and families that require more internet coverage as well as television plans. The number of fixed broadband subscriptions showed a positive trend in the last 10 years essentially motivated by Europe and Asia Pacific which constitute the biggest markets for this service. In 2017, there were about 960 new fixed subscriptions with Asia Pacific accounting for 509 of them.

The increase in smartphone penetration, consumers moving to 4G networks and the dissemination of social media boosted demand for data. Figures show improvements on data traffic growing from 43 gigabytes in 2015 to 144 gigabytes in 2017. Additionally, it is expected to reach 701 gigabytes in 2021 (Exhibit 22). Technology enabled the development of new disruptive Over-the-top (OTT) content service providers. New communication applications like WhatsApp or Rich Communications Services (RCS), are stimulating demand for data while hurting other sources of mobile revenue, SMS and voice for instance. In 2021 it is expected that SMS revenue will drop to $16 billion whereas RCS grows to $40 billion (Exhibit 23). Additionally, WhatsApp members are increasing at a very fast rate and in 5 years moved from 200 million users to 1.5 billion.

Further analysis was undertaken in order to understand how the industry is developing under each region where the company operates.

In Europe, the mobile segment has been following a downward trend for the last 6 years, with revenue decreasing from €135 billion to €115 billion in 2017 (Exhibit 24). In terms of fixed broadband, it is estimated that there are more than 189 million broadband subscribers, which is an increase of 65 million users over the last decade. The European households coverage stood at 83% in 2016, with Luxembourg conquering the first place (92%). Mobile broadband includes essentially 4G networks, however the adoption throughout Eastern Europe has been rather slow, but it is predicted to reverse in 2019.

Data consumption has

been higher than ever,

and it is expected to

increase even more.

Exhibit 21: Information Technology spending on Telecommunication services worldwide

Exhibit 23: Global SMS/RCS messaging revenue

Exhibit 22: Global mobile data traffic

Exhibit 24: Mobile service revenue in Europe 2008 - 2017

Source:Statista

Source:Vodafone Annual Report 2018

Source:Analysis Mason

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Since Europe is Vodafone’s main market, taking a closer look to each location will help designing better forecasts to understand the future of the company6_.

Germany is Vodafone’s primary market. It has been showing an overall flat growth essentially motivated by a weaker mobile service revenue, offset by strong performance in fixed broadband services. By 2026, the latter began a stabilising trend. Over the medium term it is expected that mobile service will reclaim its strength culminating in a stable to modest growth (Exhibit 25). In Italy, revenues have been declining 1% to 2%, largely motivated by the increasing competition in the mobile segment with the entrance of Iliad. In 2016, after several years of reported low revenues, the Italian market reached a positive growth mostly due to a strong performance of fixed broadband of about 6% in the first-half of 2017. Nevertheless, market researchers expect that future increasing competition in the fixed wholesale market, motivated by the new provider Enel, is expected to weaken revenues (Exhibit 26).

The United Kingdom has been showing flat growth. This was motivated by a decline in mobile revenue and lower revenue growth, yet positive, from fixed service – drags were caused by lower public-sector and wholesale revenue. Since 2014, this market has been one of the most stables in Europe, steadily growing 3% to 4% in broadband, helping offset negative mobile revenue. Nonetheless, with a penetration rate of 90%, the market is already saturated (Exhibit 27).

The Spanish segment presented a positive growth of 2%-3% due to a strong performance in fixed broadband services motivated by a high degree of convergence and positive returns from previous investments in capacity. In 2016 household convergence reached 63% and it is expected to develop even more in the following years. In terms of competitiveness, Spain is characterised by its intensive competitive environment where low cost providers disrupting the market are forcing incumbents to revise their mobile offers downwards (Exhibit 28). Vodafone’s main competitors in Europe are Deutsch Telekom, Orange and Telefónica. Deutsche Telekom is the market leader generating total revenues of €74.9 billion in 2017 while Telefónica reported €52 billion in revenues, also from the year of 2017. The company number of mobile customers in Spain was close to 17.5 million, together with a 43 million base in Germany established by a second brand called O2. Vodafone takes the third place among telecom leaders with the aforementioned total revenue of €46.6 billion and more than 19.7 million mobile customers just in the UK (Exhibit 29). In terms of brand value, Vodafone

6_{European Telecoms: How Growth and Investment Compare Across the Top Five Markets, Mark Habib, S&P Global, 2017}

Exhibit 25: German Telecoms Market Revenue Growth

Exhibit 26: Italian Telecoms Market Revenue Growth

Exhibit 27: UK Telecoms Market Revenue Growth

Exhibit 29: Revenue of the leading Telecom operators in Europe in 2016 Exhibit 28: Spanish Telecoms Market Revenue Growth

Source:S&P Global Ratings, company reporting,

Credit Suisse

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is the second most valuable telecom brand in Europe, valued in $28.86 billion, following Deutsche Telekom with $41.5 billion.

Finally, Africa has been showing a lot of opportunities for the telecommunications’ industry. The region grew at about 6% a year in mobile services and 1% annually in fixed for the last 5 years7_{. The liberalisation of the}

sector triggered a telecom revolution which enabled the deployment of new improved services and the arrival of global leaders boosting active competition. Africa has been one of the fastest-growing mobile markets in the world for the past five years reaching a penetration rate of approximately 45% (Exhibit 30) and 440 million users. These numbers are not a surprise since only 6% of Africans owned a mobile phone by 20048_.

Africa’s main operator is MTN, a South Africa based company that has been showing high numbers of subscribers and year-on-year net additions, 221 million in 2018. Vodacom, considered jointly with the remaining Vodafone Africa operations, came in second in terms of market share, with 160 million subscriptions (Exhibit 31), followed by Maroc Telecom (Morocco) with 60 million. Orascom Telecom (Egypt) and Telkom (South Africa) are the least representative in Africa with just, 46.52 million and 5.2 million users, respectively. In particular, the South African market has been completely dominated by Vodafone for the last years. Vodacom has extended its leading position over its competitors, with a

43% market share in South Africa – increasing the gap with the main rival MTN9_.

Segment Analysis

In order to better understand Vodafone’s business and its performance throughout recent years, this section will be exclusively focused on the geographical segments where the company operates.

The company itself divides its operations into the following geographic regions – Europe (first three segments) and Africa, Middle East and Asia Pacific (concerning the last two):

 Northern Europe

Starting by Northern, this segment is composed by Germany and the United Kingdom – accounting for approximately 23% and 15% of the Group’s total revenue, respectively. This is a big pie of the company’s operations and one of the most stable market.

7_{“Africa’s Telecoms Market to Hit $65bn by 2018”, Niyi Aderibigbe, Ventures in Africa}

8_{“The Telecom Sector in Africa”, Africa Business Pages, Dec 2018}

9_{“SA mobile subscribers in 2017: Vodacom vs MTN vs Cell C vs Telkom”, Business Tech, Jun 2017}

Exhibit 31: Number of subscribers (in millions)

Exhibit 30: Global unique mobile subscribers’ penetration by region

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Shifting analysis to Germany, with its mobile service stabilised and strong mobile customer base, fixed broadband service has become the main focus of the company in this market together with opportunities from converged propositions – “GigaKombi”. Germany’s commercial performance was quite strong in the last years reporting a growth in both mobile and fixed revenues - reflected in an increase in service revenues of 2.6% in 2018. EBITDA margin grew by 2.85 pp in the last year, supported by a reduction on operating costs of 2.3%.

Nonetheless, the latest deal regarding Liberty Global’s assets is expected to generate capital expenditure synergies that will deliver a €6 billion NPV10_{. Liberty}

Global, the main cable provider in Europe, will allow Vodafone to reach 11 million marketable homes in 2019 and eventually more than 50 million if the deal with Unitymedia is completed. Unitymedia, the second largest operator in Germany, will give Vodafone the opportunity to cover regions not yet covered by Liberty Global.

However, a problem arouses. German regulators11_{are concerned that customers}

might be left at disadvantage and are debating if such deal should be approved considering anti-trust issues. Nevertheless, the analyst consensus and Vodafone itself are positive that in the middle of calendar 2019 the convergence program will be accepted.

The United Kingdom business has been a long-suffering segment of Vodafone’s European operations, reporting severe losses in 2016 of €97 million and €542 million in 2017, and the slowest one to move to a converged service.

The 2016 acquisition by BT of a leading wireless provider in the UK12_disturbed

the market. Vodafone’s position was undermined once it needs to resort to wholesale fixed-line capacity on the retail side being left at a disadvantage compared to competitors. Besides, following 2012’s acquisition of Cable & Wireless Worldwide, Vodafone’s branch financial performance was dragged down once the acquisition did not go as expected, causing serious reputational damage and culminating in a £5 million fine from the UK regulator.

Notwithstanding, Vodafone expects the UK business to report stronger profits in the following years as a result of a restructuring plan in its home market. The company has struggled for more than a decade in the UK as it attempted to revive growth in its local mobile business and failed.

In what concerns to the mobile segment, highly intensive competition environment and pricing pressure will continue to impose difficulties in

10_{Vodafone To Acquire Liberty Global's Operations in Germany, the Czech Republic, Hungary and Romania}

11_{Mergers: Commission opens in-depth investigation into proposed acquisition by Vodafone of Liberty Global's business in Czechia,}

Germany, Hungary and Romania. Dec 2018, European Commission

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Vodafone’s operations both in term of revenue and mobile subscribers. Notwithstanding, it is also expected that the deployment of 5G (4G network coverage is now 99%), together with the restructure of the home market will help Vodafone change the scenario and improve its numbers for this segment. Yet, the analysts look at these figures in a conservative way especially considering past performance.

 Southern Europe

Represented by the firm’s operations in Italy and Spain - comprising 11 to 13% each of total Group Revenues - Southern Europe is one of the segments where the company faces the most challenging situation. This is essentially due to the intensive competitive market, especially at the price level with “below-the-line” offers.

Going deep into Italy, the presence of Iliad in the wireless market is expected to create an adverse impact through price and margin pressures. Vodafone has recently launched a new brand under the name of “ho” whose success and good traction allowed the company to increase price by 2€ compared to its main competitor – Iliad Italia. However, this originated a cannibalisation issue to Vodafone Italy’s main brand. Even while facing difficulties, the company managed to achieve a year-on-year decrease of around 8% on operational expenditures.

Notwithstanding, the firm has recently closed an agreement with the electric utility company, Enel, which provided additional fibre that could be used in many areas, apart from Vodafone’s already own fibre in place and NGN footprint. Having so, this create the path towards a larger network which is expected to reach around 19 million properties by 2027.13_{All the aforementioned combined, permitted a}

continued strong customer base growth and higher ARPU in fixed line, taking the best of the fixed line momentum in this market.

Moreover, Vodafone has already launched its first 5G-network in Milan, accounting with 80% coverage, and is expecting to expand it to other cities throughout the country already in 2019. Developments in the new network have totalled an investment of around € 90 million14_{so far. Just in 2018, 2.4 billion}

were used to buy spectrums.

Looking into the Spanish market, the company strategy has been changing by focusing in “more-for-more” deals. Recent trends suggested that football services were no longer profitable and driving P&L down. Consequently, the service was

13_{“We're Calling Vodafone Undervalued”, Allan C. Nichols, Nov 2018, Morning Star}

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dropped shifting now efforts towards movies and TV series, however this supports the projected decrease in TV consumers going forward.

In 2015, Vodafone acquired one of the largest cable TV operators, Ono, in Spain, opening doors to offer bundled services in this market. It should be highlighted that high-value subscribers were captured by these services. Moreover, it is important to stand out Spain’s position as the country in which the growth towards converged services has had the furthest impact: consumer converged revenues from “Vodafone One” grew by 13.7%.

Throughout the year, growth was obtained in the customer base on mobile contract customers, fixed broadband households and TV households, adding 164 000, 109 000 and 51 000 respectively. However, owing to the highly competitive intensity the company reported an increase in churn rate and a decline in broadband and TV base in the last quarter; due to same factors, the company is considering dragging costs via cutting jobs.15

 Rest of Europe

Performance in Rest of Europe has been supported by a continued cost control with an increase on adjusted-EBITDA margin of 0.3 pp to 30.7%, compared to 2017. Nonetheless, revenues have been declining since 2016, from €6.6 billion to €4.9 billion in 2018, especially motivated by losses from mobile segment which decrease by 20% just in 2018.

From all the regions combined in this segment, operations stand out in markets such as Ireland, with growth supported on fixed customers; Portugal, where service revenue grew by 4.6%, supported by a strong growth in both fixed and mobile; and Greece. In what concerns to the latter, the firm has announced the acquisition of CYTA Hellas – a fixed and mobile telecommunications provider – allowing for further progresses on fixed line, convergence plans and high cost savings owing to market consolidation.

Together with the services in Germany, Vodafone has agreed to acquire Liberty Global’s services in Czech Republic, Hungary and Romania ambitioning a convergence plan that will aggregate its biggest market, Germany, and Central and East markets (CEE). This plan will award Vodafone the position of European leader in NGN.16

 Vodacom

Vodacom – majority owned by Vodafone, holding 60.5% of the latter - concerns operations in South Africa, accompanied by its international operations; recent

15_{Vodafone Half Year Results 2019}

16_{“Vodafone strikes €18bn deal for Liberty Global's cable and broadband assets”, Mark Sweney, May 2018, The Guardian}

Vodafone will become

Europe’s leading next

generation network owner,

serving the largest number

of mobile customers and

households across the EU.

(17)

macro pressures are driving slowdowns in this segment’s performance. However, Vodacom South Africa has managed to achieve a steady growth (Exhibit 32) by finding alternative revenue streams in the strong growing demand for mobile data - data revenue grew 12.8% compared to 2017. Additionally, strong penetration numbers concerning 4G coverage have now reached 80% of users and service revenues for the fiscal year of 2018 went up by 4.7%.

Results in this market are supported by a continued strong consumer base built in the company’s personalised bundle strategy and segmentation, which now exhibits 18.7 million bundle users.

An important part of the firm’s tactic approach in this segment is drove by M-Pesa – reporting a 24% growth for the year - and again increased data demand in Vodacom’s International operations – which account for 22.2% of Vodacom’s service revenue – incorporating markets such as Tanzania, Mozambique, Lesotho (where Vodacom was the first to launch 5G), the DRC and Kenya. 17

Lastly, it can be highlighted the company’s impact as No.1 customer NPS in these markets. Hence, future performance is expected by Vodacom boosted by investments in e-commerce platforms, augmenting Fintech, Big data and expansion in Artificial Intelligence (driving smart capital expenditures for fibre deployments while preventing churn).

 Other AMAP

Lastly, the segment is composed by four major markets: Turkey, Egypt, Ghana and New Zealand. This segment showed a 10.7% increase in service revenue excluding the sale of 51% stake of Vodafone Qatar operations.

Concerning the Turkish market18_{, highlight is given to the growth on consumer}

contract and data revenue, beating local price inflation of 11% in 2018 and sustaining pressure from competitors. EBITDA margin increased by 1.4pp to 22.6% in 2018 pulled by revenue growth and reduce maintenance and repair costs19_{. On the other hand, Egypt has been showing good performance reflected}

by the 20.7% increase in service revenue. EBITDA margin grew based on successful efforts on segmentation, escalating data penetration and higher ARPU together with a strong customer base growth and cost discipline. All these factors offset the 13% local price inflation.20

17_{Interim Results for the Six Months Ended, Sep 2018, Vodacom}

18_{Case Study Vodafone Turkey: Transforming to become Customer Centric, CELFOCUS}

19_{Vodafone Turkey Reduces Maintenance and Repair Costs with CA Technologies Solutions for Service-Oriented Architecture, Sep}

2015, CA technologies

20_{“Vodafone Egypt marks record revenues in 2017, reaching over EGP 18bn”, Feb 2018, Daily News Egypt}

Exhibit 32: Vodacom Revenue 2016-2018

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Finally, Vodafone New Zealand is approaching a potential Initial Public Offering (IPO). This market has been facing difficulties in fixed line which offset the growth reported in mobile in 2018 – service revenue declined by 0.5%. Fierce price competition has been dragging revenue down which the company sought to overcome by partnering with networking giant Nokia. It is expected that Vodafone will modestly grow in the future with Nokia21_{helping stimulate the business.}

 Joint Ventures

VodafoneZiggo was born from a partnership with Liberty Global in the

Netherlands, a highly competitive market where Vodafone has been battling to maintain revenue growth and market share. Total revenue declined by 3.8% in 2018, reflecting price competition in mobile. However, it was offset by the growth in fixed line services both in terms of ARPU as numbers of consumers, showing the effects of partnering with the lead cable provider in Europe.

Notwithstanding, in 2018 Deutsche Telekom announced the acquisition of Tele2 NL to become the strong number three in the Netherlands behind KPN and VodafoneZiggo. This move from Deutsche Telekom promises to challenge Vodafone and will certainly be a disruptive force in the market. Taking this, it is expected that the results from this joint venture will be disappointing in the foreseeable future.

Vodafone Hutchison results from a merger between Vodafone and a national

incumbent in Australia. Currently, this joint venture is Vodafone’s most prominent one with a strong position in a competitive market that allowed it to grow service revenue in 0.8% in 2018 with both higher mobile ARPU and consumer base. A future merger involving Vodafone will give the opportunity to increase competitive advantage.

All the factors mentioned are expected to result in an increase in share of results from this joint venture.

Vodafone India was developed through a merger between Vodafone and a

well-known Indian telecom provider, Indus Towers and in June 2018 a new merger with Idea Cellular. The transaction was subject to intense regulatory scrutiny but culminated in a positive outcome for the venture.

Revenues from this location have been decreasing, 18.7% in 2018, essentially due to highly intensive competition from incumbents and new entrants that have been disturbing the market with fierce price competition. The regulatory pressure had also a negative impact in the company’s operations in the previous years.

21_{“Vodafone partners with Nokia for pre-standard 5G trials in NZ”, Apr 2018, Telecom Review}

We are never going to stop

breaking down barriers and

we will continue to

challenge these industries

in years to come.

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However, the Indian mobile market is one of the fattest growing one with still a lot of room to be explored. Industry forecasts show that it is scheduled to recover in the following years with larger mobile penetration and coverage. Vodafone is raising financials to invest in this market in order to satisfy demand.

It is expected that India’s operations will suffer in the next two years and steadily recover from that moment after.

Safaricom is a Vodafone’s associate in Kenya and has been showing

tremendous growth for the last years, 14.1% growth in net profit. Vodafone’s is a market leader in this location and the increasing 4G coverage has provided the company with significant advantage and allowing it to secure a strong consumer base.

Safaricom is one of the most promising association of Vodafone’s in terms of revenue growth in a low competitive market. It is expected to keep an upward trend along the forecasted period.

Valuation Assumptions

In order to build a company analysis on Vodafone it was best assumed that a Discounted Cash Flow (DCF) model will serve as the basis of this valuation. This methodology was chosen as it is believed that it can best capture the key value drivers of its business. As such, to come up with a recommendation to investors, a forecast period of 18 years was considered since recent long-term investments are expected to yield benefits later in the future only reaching steady state in 2036. Nonetheless, this recommendation concerns the Enterprise value by March 31st_{, 2020.}

Revenue Forecast

Forecasting revenues is paramount in such models once it reflects the company’s performance going into the future. Additionally, many core items are dependent on its projections.

Moving to the actual revenues forecast, these were divided per business segment resorting to Vodafone’s financial spreadsheet. Valuing such components turned out to be a difficult task as Vodafone has several sources of revenue: mobile incoming, mobile customer, fixed line service and others like fees and equipment sales.

Firstly, mobile and fixed revenues were projected sustained in two key value drivers: mobile average revenue per user (ARPU) and net additions. To get a better understanding of each part composing the broad segment, operations in

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the major markets, like Germany, Italy, UK, Spain, Rest of Europe, Vodacom and Other AMAP, were considered. This allowed stronger results and more coherent forecasts.

Supported by the assumptions, the values retrieved for revenues did not match exactly the reported ones, yet they are perfectly correlated. As such, it was possible to determine a growth rate throughout the forecasted period for each segment, which was further applied to reported revenues as inputs in the model. Moreover, to support the forecast, both past performance and future projections were summarised on the table in Appendix I.

Cost Discrimination

The cost structure of the company is divided in three main components: direct costs, customer costs and operating expenses. Since the company does not provide any further discrimination on these, the forecast was based on a pattern found when comparing each cost stream to revenues. Thus, an average of the past three years was used to compute future costs.

Together with the cost deployment structure in course through the “Fit for Growth” programme, already explained in the previous sections, it was applied an annual cost reduction over the period to the average of the reported years. Additionally, the acquisition of Liberty Global’s assets in Germany and the CEE was considered separately as gains are expected to drive costs further down, i.e. reflecting benefits from the convergence plan (Exhibit 33).

EBITDA Margin

According to the company’s strategic plans, management has been implementing a cost efficiency plan under the name Fit for Growth. The main goal, as already explain in this report, is to improve the company’s profitability margins and sustainable growth. Compared to the industry average of 25.80%, Vodafone’s EBITDA margin is higher, standing at 31.65% in 2018. Moreover, the company is followed by Orange with 31.12% (Exhibit 34)22_{. Geographically, Vodafone has}

very similar EBITDA margins across its business segments. Other AMAP represents the lowest one with only 26.93%, and the highest of the group is found in Southern Europe with 38.70%, figures from year-ended 2018.

The margins are expected to increase in all segments which is aligned with Vodafone’s ambitions and the cost cutting programme currently undertaken. Nevertheless, this growth will vanish over the period around 32% as steady state is reached.

22_{"Margins by Sector", NYU, Jan 2019}

Exhibit 33: Annual reduction in costs

Exhibit 34: Previous FY Industry’s EBITDA Margin

Source:Analyst estimations

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Capital Expenditures

Vodafone’s main capital expenditure (CapEx) projects include: requirements to roll out networks in major emerging markets like South Africa - one of the group’s prime market in this segment; capital needed to provide data products and services; requirement to meet the population coverage in terms of wireless band and mobile frequency, i.e. expenses related to usual capital replacement. Closely, it combines all the cash outflows that concern the purchase of new property, plant and equipment (PP&E) and computer software necessary for the Group’s development.

For valuation purposes, net PP&E and other intangibles will be collectively forecasted, net of accumulated depreciation and amortization. These costs are estimated as a percentage of Net PP&E and other intangibles.

The company is expected to have an extraordinary capital expenditure related to the acquisition of Liberty Global - additional information formerly scrutinized under the segment section. Since there is a strong likelihood that acquisition will be approved by EU’s regulatory commission, it was included in this analysis. Hence, the impact of this transaction was calculated resorting to the value of the assets of Germany and CEE operations from Liberty Global’s annual report23_,

together with the value of the deal and integration costs disclosed by Vodafone in its acquisition report24_{. The transaction is expected to be completed in}

mid-calendar 2019 so that the value of €11.105 billion is added to 2020’s PP&E (Exhibit 35). Further amortizations of integration costs and synergies are also considered over the years.

Moreover, combining Vodafone’s prospects with the known ambition of leading 5G network implementation, which is already starting to take place in some of its markets, an impulse to CapEx growth is expected in line with these investment requirements. To forecast this component, it was taken into account the deployment of 4G LTE networks back in 2010 as proxy for growth (Exhibit 36

and 37) yet in a more stable manner, since the industry experts believe that 5G

investments will use some of the 4G already developed infrastructures.

Goodwill

Vodafone has had an history of overpaying for its acquisitions and that is why the goodwill has such a high value. However, tests for impairments are performed at least annually so that Goodwill is subject to strong write offs that have been

23_{Liberty Global PLC Annual Report – 2017, pg. 250}

24_{“Acquisition of Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania”, pg. 3, 12}

Exhibit 35: Liberty Global’s Deal

Exhibit 36: 4G Industry Capital Expenditure

Exhibit 37: 4G Investment vs. Vodafone’s PP&E Forecast

Source:Liberty Global annual report 2017

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reducing it along the years. As such, the analysts expect that the latter will persist throughout the company’s life.

In 2020, in case the acquisition of Liberty Global is approved by regulatory parties, Vodafone will report an increase in Goodwill of €7.295 billion. This amount reflects the difference between the value of deal and the assets fair value, including implementation costs.

Taxation

For a company with operations spread across different countries the tax treatment can be challenging. Likewise, the analyst felt the need to apply in the model a corporate tax rate that would reflect the different countries’ statutory rate. Given that not every country has the same weight on Vodafone’s revenues, when calculating the effective tax rate, they were accounted proportionally reaching a value of 22.49%. This value will be later on subject of a scenario analysis.

Moreover, Vodafone has been reporting large amounts of deferred tax assets (DTA) and liabilities (DTL) over the years. The majority of the company’s DTA are related to problems in Luxembourg – location where corporate activities are run, i.e. the Group’s internal financing, procurement and roaming. In 2014 and 2015, DTA were recognized due to revaluations arising in Luxembourg investments in order to meet LUX GAAP compliance. These losses do not have an expiration date. Additionally, write offs from investments in Germany in 2000 gave rise to DTA. These losses still remain within the company as they also do not expire. Nevertheless, in 2016 and 2017, DTA were subject to a derecognition due to investment revaluations in Luxembourg and Germany.

Giving the aforementioned, the analyst did not find sufficient basis to support DTA’s forecast since these events are unpredictable once they derive from revaluations and write offs dependent on the market value of the underlying assets. However, the forecasts indicate that the Group will be able to generate enough profit in all locations in the foreseeable future to which DTA can be used. Hence, DTA and DTL was reduced annually by 2%, reducing the balance sheet account and crediting comprehensive income by reducing tax expense.

In addition, DTA and DTL do not have an expiration date and Vodafone expects to use them entirely in 20 to 50 years.

Discontinued Operations

In 2016, Vodafone moved its Indian activity to discontinued operations following the intention to create a new joint venture involving Idea Cellular, previously discussed in the segments’ analysis.

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The venture was finally concluded in August 2018 and following the merger, a loss on disposal of €3.4 billion arose in the first half-year 2018/1925_{. Given that}

discontinued operations solely reflect this business, this line will be removed from the income statement and balance sheet from this year on after.

WACC & Growth rate

To discount the company cash flows, the weighted average cost of capital (WACC) has to be determined. In order to do so, it is necessary to estimate the

cost of equity - through the Capital Asset Pricing Model (CAPM); the cost of

debt - resorting to the company’s outstanding bonds; and the target Debt to

Capital ratio.

The CAPM model has as inputs the risk-free rate, the market risk premium and the beta of the company. The risk-free rate of 0.948% is based on the spot rate of 30-year AAA Government Euro Bonds26_{, since it is denominated in the same}

currency as cash flows and it is perceived as a risk-free asset. As for the equity market risk, MCSI World Net Eur27_{was considered. Retrieving historical data}

since 2013, an annual average market return was calculated getting to a value of 9.8%.

The beta estimation was based on a group of comparable firms that are exposed to the same risk profile as Vodafone in a well-defined peer group of 6 telecom providers. Orange (France), Swisscom (Switzerland), Proximus (Belgium), Telefonica (Spain), BT Group (United Kingdom) and Deutsche Telekom (Germany) were selected since they provide analogous services in similar markets, thus exposed to the same economic and industry factors as Vodafone. First of all, the raw betas for each comparable firm were retrieved from Bloomberg, as well as the respective current market debt-to-capital ratio. Once refuted the hypothesis of Beta Debt being equal to zero, a representative bond from each peer was considered combined with the respective issue price, coupon rate and maturity in order to compute the yield to maturity at issuance. Resorting to the CAPM model, the beta debt of each company was calculated and then used to determine the unlevered beta. Since unlevered betas focuses solely on operating risk, they can be averaged across competitors. Finally, a relevered beta

of 0.67 was retrieved, leading to a cost of equity of 6.8%. This percentage is

consistent with the historical cost of equity reported by European Central Bank in the Euro area of 8%28_.

The target Debt to Capitalization ratio was assumed to be the one projected for 2036 once the current company’s financial position and the foreseen investments

25_{Vodafone Group H1 2018/19 Results & Strategy Update, pg. 13} 26_{“Euro area yield curves”, European Central Bank}

27_{MSCI World Net EUR (MIWO00000NEU), Global market Indexes, investing.com} 28_{“Measuring and interpreting the cost of equity in the euro area”, European Central Bank}

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will predictably force Vodafone to change their capital structure and increase borrowing. Therefore, the target stands at 59% which is in line with the main players in the telecommunication’s industry.

For the cost of debt, a representative bond of Vodafone was chosen. The Group has currently €30 million worth of outstanding bonds in the most diverse currencies and maturities. The chosen one is a euro-dominated bond with a maturity of 14 years, coupon rate of 2.88% and issued at 98.229% of par. This bond gives a yield to maturity of 2.92683%29_{. Applying the current tax rate, the}

cost of debt stands at 2.3%, which follows Vodafone and the market’s consensus

estimations for the company.

Finally, combining all these assumptions a WACC of 4.165% was retrieved. Both WACC and the company’s capital structure will be further challenged in the sensitivity analysis section.

Nevertheless, the company’s perpetual growth rate was calculated taking into consideration a ROIC of 6% and a payout ratio of 99%, reaching a value of

0.033% for the terminal growth rate - reasonable for a mature company like

Vodafone.

Valuation Outcome

The final result from the valuation model discloses a buy recommendation for Vodafone Group PLC London at the year-end 2020 target share price of £2.65 reflecting a gain of 69% to its current share price of £1.57 (at the time of this report).

The valuation model retrieved an Enterprise value of €137 785 million, getting to a final Equity value of €82 530 million by subtracting Net Financial Assets. The total shareholder return will be 78%, including the cash dividend.

Multiples Valuation

As an alternative to the DCF analysis, a multiples valuation approach was also conducted. The selected companies for this analysis were the ones composing the peer group previously defined for the WACC computation.

Moving into the valuation, firstly the mean of each multiple – EV/EBITDA, P/E and EV/EBIT - was considered, focusing on the three companies whose multiples were the closest to the calculated peer group’s mean. Secondly, the highest and lowest multiple values were taking into account in order to build a range where Vodafone’s share price should lie in. Nonetheless, EV/EBITDA is preferred as