Vodafone and Liberty Global talks could resume, JP Morgan says

If Vodafone can continue to deliver on its financial targets that could open the way for an asset swap with Liberty Global mooted earlier in 2015, a top research team said on Tuesday.

After hosting Vodafone´s chief executive officer and chief financial officer last week, JP Morgan said management expected service revenue growth to accelerate in the second half of the year, led by Germany, Italy and South Africa.

Greater operating leverage and cost-cutting could boost the group´s operating margin by three percentage points in the medium-term, the broker said in a research report sent to clients citing Vodafone´s CFO.

The telecommunications carrier´s chief was confident the ratio between capital expenditures and sales would fall to between 13% to 14% now that the lion´s share of the spend on upgrading the mobile network had been carried out.

That "suggests suggest EFCF (pre-spectrum) could re-rate to >£5bn medium-term (offering a compelling 10% yield)," JP Morgan said.

"If Vodafone continues to deliver against its targeted operational improvements, we believe this could eliminate the valuation disparity, and see talks revived."

On 5 June Vodafone issued a statement denying it was in talks to merge with Liberty Global but that discussions aboout possible asset swaps were being held.

Those discussions came to a halt because of differences between the two firms over valuations.

Industry insiders believed Vodafone was interested in purchasing Liberty UK´s Virgin Media while the US outfit was thought to covet Kabel Deutschland, Vodafone´s German cable operator, which was the second largest in that country.