Vodafone gets rich valuation for Hungarian companies as telecom operators pay off debt
Vodafone Group PLC sold its Hungarian operations at a high valuation multiple, underscoring the hidden value of the company’s extensive portfolio, analysts said. A set of unique location conditions contributed to the bounty.
Vodafone has agreed to sell Vodafone Magyarország Mobil Távközlési Zartkoruen Mukodo Részvénytársaság to local player 4iG Nyrt. and the Hungarian government for 1.77 billion euros. The deal values the assets at an implied enterprise value to EBITDA of 7.7x, according to S&P Global Market Intelligence. Excluding leases – or EBITDA after leases, a valuation method favored by telecommunications analysts – the multiple rises to 9.1x.
Over the past three years, only one transaction in emerging Europe had a better multiple than Vodafone’s Hungarian business. The sale of ATM SA in Poland to private equity firm Global Compute Infrastructure LP in 2020 hit a multiple of 11.0x, largely because data centers are more valued by the market.
According to JP Morgan Cazenove, a UK unit of JP Morgan, the Vodafone transaction offers strong synergies for 4iG, which earlier this year completed the acquisition of DIGI Hungary for 620 million euros.
“We believe this is the primary driver of the high exit multiple, and therefore cannot necessarily be read directly into other potential future asset sales from Vodafone,” said JP Morgan Analyst Akhil Dattani in a report following the announcement of the deal. Dattani leads the company’s European telecom research.
The Hungarian government sought to consolidate the national telecommunications sector and may have been willing to pay a premium for the Vodafone unit.
“We believe that Vodafone was not actively seeking to sell its Hungarian assets, but was approached by 4iG and the Hungarian government, who want to create a national champion to compete with Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság”, New Street Research analyst James Ratzer said in a note. Magyar Telekom is owned by Deutsche Telekom AG.
“Given the multiple on offer, this was a sensible deal to help unlock value for Vodafone,” Ratzer said, adding that the deal highlights “the optionality that exists in the portfolio, and especially to unlock value at a higher multiple for [Vodafone’s] own course of action.”
Analysts did not expect Vodafone’s first major deal to come from Hungary, as the company’s management has in recent quarters guided a partial sale of Vantage Towers AG, which is headquartered in Germany and in which Vodafone owns an 80% stake. Vodafone has also been trying to strike deals in key markets like the UK, Spain and Italy.
Deals like the sale of Hungary help Vodafone reduce its debt. The company ended the March quarter with total debt of €72.26 billion and a total debt to EBITDA ratio of 4.8x.
With respect to net debt – which takes into account offsetting cash balances – the company’s net debt to EBITDA ratio will drop from 2.59x to 2.51x after the deal closes, according to New Street analysis. If debt is reduced below 2.50x, it means Vodafone will start returning money to shareholders, according to management guidance.
If Vodafone started moving out of other smaller European markets, it would be spoiled for choice. In addition to Hungary, it is present in markets such as Portugal, Ireland, Greece, Romania, Albania and the Czech Republic. Together, these activities generate an adjusted EBITDA after rents of around 1.4 billion euros.
