Zegona Communications Boosted by Strategic Deals and Cost Savings
Zegona Communications Sees Growth Potential with New Agreements
Barclays recently revised its price target for Zegona Communications (ZEG:LN), increasing it significantly from £3.50 to £6.00. This favorable adjustment underscores the firm’s continued endorsement of an Overweight position on Zegona’s stocks.
Strategic Integrations Expected to Generate Cash Flow
The upward adjustment of the price target comes in the wake of Zegona's recent agreements with MasOrange and TEF, which involve plans to integrate the company's Coax assets into Fibre NetCo operations. The implications of this strategic move are substantial, as forecasts suggest that these integrations could lead to a remarkable generation of free cash flow, estimated between €1.8 billion and €2.3 billion. This result is expected to stem from crucial stake sales and dividend recapitalizations.
Operational Expenditures and Cost Mitigation
However, it is important to note that Barclays expects Zegona's operational expenditures to see an increase of about €200 million annually due to these agreements. Nevertheless, this impact is anticipated to be somewhat softened, leading to a net financial effect closer to €100 million per year, thanks to reductions in ongoing cable-related costs.
Significant Savings Expected from New Partnerships
Currently, Zegona faces significant wholesale fiber costs in the range of €200-250 million. With the newly established deal with TEF, the company is projected to achieve cost savings of approximately €30 million each year. Additionally, Zegona anticipates further savings through headcount restructuring, estimated at around €70 million annually, despite facing one-time costs totaling €100 million.
Impact on Capital Expenditures
The analysts at Barclays are optimistic that these strategic initiatives could lead to a marked decrease in Zegona's capital expenditures associated with network investments. For the financial year of 2025, Barclays now forecasts these expenditures to amount to about 17% of sales, correlating to approximately 10% based on Vodafone’s (NASDAQ: VOD) reporting standards.
Informed by Recent Market Insights
This revised outlook aligns with takeaways from the recent Sunrise capital markets day, where discussions revolved around the financial transitions from cable to fiber wholesale operations, particularly focusing on operating expenses and capital expenditure dynamics.
Frequently Asked Questions
What recent changes did Barclays make regarding Zegona Communications?
Barclays raised its price target for Zegona from £3.50 to £6.00 and continues to recommend an Overweight position on the stock.
What is the expected free cash flow from the agreements made by Zegona?
Zegona's agreements with MasOrange and TEF are anticipated to generate free cash flow between €1.8 billion and €2.3 billion.
How will Zegona's operational expenditures change due to the new agreements?
Operational expenditures are expected to rise by approximately €200 million annually, though it should net closer to €100 million due to cost savings on cable operations.
What savings is Zegona expected to realize from the TEF deal?
The company is projected to save around €30 million annually as a result of the new agreement with TEF.
How will Zegona's capital expenditures be affected in the coming years?
Barclays predicts that capital expenditures will decrease to about 17% of sales in 2025, reflecting an improvement in cost efficiency.
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