Is Vodafone Group Plc (ADR) (VOD) Cheap Now? – Verizon Communications Inc. (VZ), Deutsche Telekom AG (ADR) (DTEGY)

Hidden value in a 45% stake in Verizon Wireless

What is missing in all those numbers above is the potential value of Vodafone’s 45% stake in Verizon Wireless. A 45% stake in Verizon Wireless would equal £20.18 ($30.4) billion in revenue, £7.7 ($11.6) billion in adjusted EBITDA and £4.87 ($7.34) billion in net profit. David Einhorn, in the letter to shareholders, wrote that Verizon Communications, a 55% controlling owner of Verizon Wireless, had starved Vodafone by restricting Verizon Wireless from paying dividends for years. However, unlike Verizon Communications Inc. (NYSE:VZ), Vodafone Group Plc (ADR) (NASDAQ:VOD) did not rely on Verizon Wireless’ contributions. According to Deutsche Bank estimates, if Verizon Wireless is valued at 8 times EV/EBITDA, Vodafone’s stake in Verizon Wireless might be worth $120 billion. Therefore, at the current price, after excluding the value of the Verizon Wireless stake, Vodafone along is worth only nearly $12.7 billion.

Foolish Bottom Line

Vodafone seems to be quite cheap at the current price, thanks to its 45% stake in the growing and profitable cash cow Verizon Wireless. If Verizon Communications seriously considers a buyout for Verizon Wireless, Vodafone’s potential value would be unlocked immediately.

The article Is Vodafone Cheap Now? originally appeared on Fool.com and is written by Anh HOANG.

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