Jefferies analysts weighed up the risks for investors in UK-based telecoms operators following the country's decision to leave the European Union (EU), as economists, politicians and civilians started to consider the potential impact on the country's industry and economy.
In a research note sent early on Friday morning, Jefferies described Vodafone as a "relative safe haven" for UK income investors, noting that with only 8 per cent of expected EBITDA in the fiscal year to end-March 2017 derived from the UK, "on our estimates, weaker sterling can have a material positive translation effect on sterling earnings."
Although there are some potential downsides for Vodafone -- such the extent to which Brexit undermines business confidence and therefore demand for the company's enterprise business, and the fact that the company may no longer be perceived as a "European champion" -- it is considered to be "better positioned" than BT, according to the analysts.
For BT, Jefferies said the company could suffer generally from weaker market confidence and more uncertain asset returns. Other key risks are that BT might attract tougher scrutiny depending on the extent to which Ofcom becomes "unshackled from European regulatory policy."
In addition, the analysts said lower confidence levels among UK enterprise customers could weaken demand at BT Business, "with similar effects possibly extending to BT Consumer and EE."
With regard to Telefonica, Jefferies said weaker sterling makes the operator's O2 UK business less valuable, with every 10 per cent drop in sterling marking down the value of O2 UK by €0.25 per Telefonica share.
"This is unhelpful for [Telefonica's] attempts to reduce debt through a trade sale of O2 UK or IPO of a minority stake," Jefferies said. "Perhaps the greater anxiety for [Telefonica], however, is that it might be tougher to generate investor interest in either of these transaction should the UK be perceived as an unattractive market for investment and/or should there be concern that sterling could weaken further in future."
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