XP believes that Vivo’s agreement with Anatel to convert its fixed-line telephony concession to an authorization regime should generate a net present value (NPV) of R$ 8.5 billion, equivalent to 9% of the company’s market cap.
As part of the agreement, closed in July, Vivo will have to invest R$ 4.5 billion over the next 10 years, committing to maintain essential fixed-line telephony services in a limited number of cities until 2028.
In a report published this evening, analyst Bernardo Guttmann said that the migration should allow for the shutdown of the legacy network, resulting in estimated annual savings of R$ 1 billion.
Furthermore, Guttmann estimates that Vivo could raise another R$ 6.5 billion from the sale of assets, from its copper network to real estate assets within the concession.
“Initially, Anatel demanded R$ 8.7 billion, but Vivo managed to negotiate a reduction in arbitration, settling all liabilities related to the concession (of about R$ 1 billion),” says XP.
“The migration will allow Vivo to deactivate a large part of its legacy network, serving customers with its fiber network covering 27 million residential customers, mainly in São Paulo. This process is expected to create substantial value for Vivo by eliminating regulatory obligations in areas that were unprofitable.”
XP said it is difficult to estimate the relevance and extent of the network that will be decommissioned (and that Vivo may sell).
“But we can draw insights from Oi’s experience. Oi recently sold its copper network to BTG for R$ 5 billion in a deal that eliminated some of the company’s liabilities,” says XP.
XP assumes that Vivo’s network is 30% the size of Oi’s, which would give a value of about R$ 1.5 billion.
Vivo also holds the reversible assets of the concession, which should be returned to the government at the end of the concession but may likely be incorporated by the company as part of the negotiation.
“In 2023, Anatel released a list of reversible assets from concessionaires, including 1,700 Vivo properties, including towers and power stations. Although the value is lower compared to Oi’s, the location of these properties in São Paulo, where the cost per square meter is higher, should generate significant value.”
XP values these assets at R$ 5 billion.
Vivo will also have a non-cash gain from being able to reverse provisions related to the concession. According to XP, the operator had provisioned R$ 1.85 billion in the second quarter, with a good part of it (about R$ 1 billion) related to concession disputes.
“This amount can be eliminated and will reflect positively on the company’s balance sheet. This should increase profit base and, consequently, dividends to be distributed.”
Considering all these gains, XP reaches a post-tax NPV of R$ 8.5 billion — equivalent to R$ 5.15 per share or 9% of Vivo’s market cap.
“This value is significant and can translate into extraordinary dividends.”
Vivo closed the day worth R$ 91 billion on the stock exchange.
Source
Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
