VMEDO2 - comment

VMED outperformed our model by over £100m or nearly 5% in Q226, which added £23m at EBITDA level to come to £894m. The outperformance came across Consumer, Fixed and Retail. But even as the company outperformed our estimates, results are materially lower than last year as the UK broadband market is in intense competition.

More importantly, the market is focused on the Netomnia acquisition. Under the deal announced in February, VMO2 permanently migrates 4.6 million homes to Nexfibre in exchange for £1.1bn upfront and ongoing access fees estimated at £250m per year. These fees should weigh further on the already much reduced FCF of the company, and the market is rightly concerned that the cost is more certain than the benefit. The violent bond movement in recent weeks requires us to revisit our analysis thoroughly.