Market analyst Jefferies has rated leading Netherlands cable operator VodafoneZiggo (VZ) a buy, suggesting that the company is proceeding well with its business integration plans following a 2016 merger. Explaining its rationale, Jefferies said “a central element is that operating cashflow growth turned positive in 2018, and is guided to continue with a 2019e outlook of +1%/3% OCF growth.”
The analyst says that VodafoneZiggo is benefiting from merger synergies, with savings of €105m in year-end 2018. It adds that “content cost inflation is no particular concern, since most rights have been renewed recently (some dropped) within budget.”
Having said this, Jefferies also warns of potential headwinds such as a declining b2b market and a costly mobile handset replacement cycle. In addition, it notes: “The wild card is market structure”. With VZ and KPN dominating both the fixed and mobile markets in the Netherlands, the analyst raises the prospect of attritional competition and hardening regulatory opposition to the de facto duopoly.
In terms of strategic priorities, Jefferies says VZ “is present in 70% of households with at least one product, but has 38% b2c revenue share. The aim is to use this situation to sell more mobile contracts into the fixed base.” Among the key differentiators VZ highlights between itself and KPN, reports Jefferies, is “its speed advantage in fixed broadband, a superior viewing experience and a strong fixed/mobile proposition.”