On Monday, Barclays increased its price target for Zegona Communications (ZEG:LN), a telecommunications investment company, to £6.00, up from the previous target of £3.50. The firm continues to recommend an Overweight position on Zegona’s stock.
The adjustment follows Zegona's agreements with MasOrange and TEF to potentially integrate its Coax assets into Fibre NetCo operations, which is expected to generate between €1.8 billion and €2.3 billion in free cash flow (FCF) through stake sales and dividend recapitalizations.
According to Barclays, these deals will likely raise Zegona's operational expenditures by approximately €200 million annually. However, reductions in ongoing cable costs should mitigate the overall effect, resulting in a net impact closer to €100 million per year.
Zegona, which currently incurs €200-250 million in wholesale fiber costs, is anticipated to save around €30 million annually from the new TEF deal. The company is also expected to benefit from cost savings related to headcount restructuring, estimated at around €70 million per year, against one-time costs of €100 million.
The analyst notes that these strategic moves could lead to significantly reduced network capital expenditures for Zegona. For the year 2025, Barclays now projects capital expenditures to be around 17% of sales, or roughly 10% on a Vodafone (NASDAQ:VOD) reporting basis.
This forecast aligns with insights from the recent Sunrise capital markets day, which discussed the financial dynamics of transitioning from cable to fiber wholesale operations in terms of operating expenses and capital expenditures.
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