Liberty Reports Flattish Results, Acquires 5% Stake in Vodafone

Narrow-moat Liberty Global LBTYA closed the year meeting its own guidance. For the full year, sales and EBITDA of consolidated entities (Switzerland, Belgium, and Ireland) remained flattish on an organic basis, increasing 1.7% and decreasing 0.9%, respectively. The Virgin Media-O2 joint venture saw flattish revenue growth and mid-single-digit EBITDA growth, while Dutch joint venture VodafoneZiggo saw flattish sales and EBITDA growth. Liberty’s shares are trading in value territory, offering 50% upside right now. However, value might take time to materialize as Liberty is a big conglomerate with many moving parts, reducing revenue and profit visibility. Also, most of its value is not consolidated but resides in its U.K. and Dutch joint ventures, where it shares ownership with other operators. We are maintaining our $32 fair value estimate.

On Feb. 13, Liberty acquired a 5% stake in Vodafone, which management says is “an undervalued asset with many near-term catalysts.” Vodafone shares offer 25% upside compared with our GBX 125 fair value estimate, and we believe the company has many characteristics in common with Liberty, such as being a big conglomerate (present in more than 20 geographies). In our view, only significant asset sales and portfolio simplification could unlock any hidden value Vodafone might have. Liberty and Vodafone have friendly relationships, as they have been running VodafoneZiggo together in the Netherlands for seven years. Liberty said it won’t pursue a board seat at Vodafone.

Liberty repurchased shares aggressively in 2022, something we look favorably upon, given the discount compared with our $32 fair value estimate. In 2023, Liberty intends to again repurchase 10% of its outstanding shares.