Zegona's Spanish Gambit: A Telecom Turnaround with Fiber Fuel

The telecom sector is in flux, but few companies have executed such a bold turnaround strategy as Zegona Communications, the rebranded Vodafone Group. Its acquisition of Vodafone Spain in May 2024—followed by a swift disposal of the business for €4.1 billion—has positioned it as a key player in Europe's fiber broadband boom. For investors, Zegona's move offers a compelling thesis: a disciplined “buy-fix-sell” model, strategic fiber partnerships, and a focus on high-growth markets could unlock significant value. But will the execution match the ambition?

The Financial Turnaround: Validation of Zegona's Model

Zegona's acquisition of Vodafone Spain was never about holding the asset long-term. Instead, it aimed to harvest value through operational improvements before monetizing it. The results so far validate this approach:

• Revenue Growth: Post-acquisition, Zegona's FY2025 service revenue rose 2.8% to €30.8 billion, driven by digital services (up 15.1% in Germany alone) and emerging markets like Africa (6.4% growth) and Türkiye (50.4% organic growth, excluding hyperinflation).
• EBITDA Recovery: Adjusted EBITDAaL reached €10.9 billion, a 2.5% organic increase, despite headwinds in Germany from regulatory changes and foreign exchange drags. Cost cuts—such as 10,000 role reductions and €300 million in operational savings—offset these challenges.
• Balance Sheet Strengthening: Proceeds from selling Vodafone Spain and Italy reduced net debt to €22.4 billion, enabling a €2.0 billion share buyback program and rebasing dividends.

The “buy-fix-sell” model is working. By acquiring underperforming assets, trimming costs, and selling them at a premium, Zegona is proving it can generate capital to fuel growth elsewhere. The €4.1 billion from Spain alone covered 80% of the buyback program, a clear win for shareholders.

Strategic Moves: Fiber Partnerships and Asset Sales as Catalysts

Zegona isn't just spinning off legacy assets—it's betting big on fiber networks, a sector primed for growth. Two moves stand out:

1. FiberCo with MasOrange: A 50-50 joint venture with Telefonica's Spanish unit to build 10 million fiber connections in Spain by 2030. This leverages Spain's regulatory push for broadband expansion, where 70% of households still lack gigabit access.
2. Asset Sales as a Playbook: The “held for sale” classification of non-core assets (e.g., Vodafone Spain) ensures Zegona remains agile. Proceeds from these sales fund shareholder returns and high-margin fiber projects, creating a virtuous cycle of capital recycling.

Market Dynamics: Spain's Fiber Opportunity and Regulatory Tailwinds

Spain's telecom market is a microcosm of Europe's broader shift to fiber. Key trends favor Zegona:

• Regulatory Support: Spain's government aims for 95% gigabit coverage by 2030, with subsidies to fund infrastructure.
• Competitive Landscape: While Telefonica dominates Spain's consumer market, Zegona's partnership with MasOrange via FiberCo gives it a foothold in high-growth fiber projects.
• B2B Growth: Enterprises increasingly demand secure, high-speed networks, a segment where Zegona's Vodafone Business unit (up 15% in digital services) is well-positioned.

Risks: Execution and Antitrust Hurdles

The strategy isn't without pitfalls:

• Workforce Reductions: Trimming 10,000 roles risks operational disruptions if not managed smoothly.
• Antitrust Scrutiny: Zegona's merger with Three UK faces CMA approval, which could delay £700 million in annual synergies.
• Dependency on Partners: FiberCo's success hinges on collaboration with MasOrange—a relationship that could sour if priorities diverge.

Investment Thesis: Buy the Fiber Play

For investors seeking exposure to telecom infrastructure, Zegona offers two near-term catalysts:
1. UK Merger Approval: A green light would unlock cost savings and expand Zegona's footprint.
2. FiberCo Progress: Early milestones in Spain's fiber rollout could lift valuation multiples.

Longer-term, Zegona's fiber assets—backed by strong demand and regulatory tailwinds—are undervalued. At a 12.5x EV/EBITDA multiple, shares appear cheap relative to peers.

Recommendation: Buy Zegona for investors with a 1–3 year horizon. The fiber narrative, coupled with balance sheet strength and strategic asset sales, positions it to outperform in a consolidating telecom landscape. Monitor execution risks closely, but the upside in Spain's fiber boom makes this a compelling bet.

Final thought: In telecom, fiber is the new gold. Zegona's Spanish gambit could just be the first step in building a digital empire.