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Last updated: January 8, 2013 7:23 pm
Vodafone advanced in a flat London market as hopes were rekindled that Verizon would bid to take full control of their joint venture.
Verizon chief executive Lowell McAdam said in a newspaper interview that he would be interested in buying Vodafone’s 45 per cent stake in Verizon Wireless and had the financial flexibility to achieve it.
Though Mr McAdam had made similar comments in the past, the stronger rhetoric suggested Verizon was looking at ways to lever the current strength of its wireline business against Vodafone’s weak performance in Europe, said analysts.
“It would be a good moment for Vodafone to sell its stake in Verizon Wireless,” said Bernstein Research. “We expect the operating environment for Verizon Wireless to deteriorate, so in spite of continued growth we may be at maximum value today given its high multiples.”
Vodafone could raise $100bn by selling the stake but would have to pay nearly $30bn in capital gains tax, meaning it would not get close to realising full value for the prize asset, said Nomura Securities. A merger between the two companies was the most likely medium-term solution, it argued.
But JPMorgan Cazenove, Vodafone’s joint house broker, said a partial stake sale looked more likely. It guessed that Vodafone could sell a 10 per cent stake for about $21bn, possibly offsetting the tax bill against US losses at its C&W Worldwide division.
Putting a benchmark valuation on Verizon Wireless would help Vodafone negotiate a new dividend commitment for the venture and ease investor concerns about its own payout, JPMorgan said. Vodafone shares closed up 1.7 per cent at 162.4p,
The wider market drifted for a second day, with the FTSE 100 down 0.2 per cent, or 10.95 points, at 6,053.63.
Tui Travel lost 3.4 per cent to 276.8p after a downgrade to “underweight” from Morgan Stanley, which raised concerns about its earnings quality.
Tui Travel has delivered earnings growth of 21 per cent per share since 2009 but depreciation and amortisation charges have dropped 31 per cent while operating earnings have remained flat, said the broker. “EPS growth seems largely to be driven by lower depreciation, despite net capital expenditure increasing sharply, and underlying free cashflow has halved.”
Tullow Oil fell 3.6 per cent to £12.25, with Investec Securities turning negative ahead of a trading update due on Friday. Results are also expected shortly from Tullow’s high risk, high impact Paipai wildcat well in northern Kenya.
While still a best-in-class explorer, Tullow’s production profile has become increasingly important to its performance, Investec argued. But problems at its flagship Ugandan field and mixed results in West Africa mean production has been delayed over the past 18 months, it said. As a result, Tullow needs to sell assets to fund its development budget which leaves its exploration side over-exposed to disappointments, Investec said.
Among the gainers, Shire was up 2.6 per cent to £19.63 on word it had raised prices of its key hyperactivity drugs by 9 per cent from the start of the year. Shire said after the close that it was increasingly confident of meeting 2013 earnings expectations.
Outsourcer Interserve rose 4.3 per cent to 415.8p after reassuring that it would match guidance.
A day ahead of its trading update, J Sainsbury rallied 2.2 per cent to 339p after supermarket industry data from Kantar suggested its market share had stabilised in December. Tesco , whose survey data also reassured, rose 0.6 per cent to 351.5p.
Having doubled over the past year, Debenhams slid 7.7 per cent to 108.1p on profit-taking after cautioning that promotions had dented profitability over Christmas. Marks and Spencer , which reports tomorrow, drifted 0.7 per cent to 369.6p.
Centamin continued its recent rally, up 9 per cent to 44.2p, on reports it had settled a disagreement over permits and restarted gold shipments from Egypt. The rally came in spite of suggestions that production figures due imminently would miss its year-end target of 250,000 ounces.
Ferrexpo , the iron ore pellet maker, gained 1.6 per cent to 273p after reporting steady production for the fourth quarter, in line with market expectations.
African Barrick Gold dropped 20.7 per cent to 352.1p after its owner said talks to sell the miner to China National Gold had collapsed.
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