Since 25 June, the Vodafone (LSE:VOD) share price has been the 12th-best performer on the FTSE 100, rising by just over 12%. “So what?”, I hear investors in JD Sports Fashion cry. After all, shares in the British ‘trainers and tracksuits’ retailer have increased by more than 21% over the same period.
But Vodafone’s shareholders (like me) have suffered for a long time. It was during the first half of 2023 when the group’s shares were last regularly changing hands for more than 80p.
I’m particularly excited by the recent rally because I’m close to breaking even. Dividends have offset some of my paper losses but, ignoring these, I’m hopeful that I’ll soon be in the black again.
What’s going on?
One of the catalysts of the recovery appears to be the merger of its UK operations with Three. The combined business, which will trade as VodafoneThree, is expected to add €400m to EBITDAaL (earnings before interest, tax, depreciation, and amortisation, after leases) each year.
Fans of share buybacks will probably claim that the recently-completed €2bn of purchases has helped.
And the group’s results for the first quarter of its 2026 financial year were encouraging. Group revenue was up 3.9% compared to 12 months earlier, the business in Türkiye and Africa continues to do well, and it’s experiencing “strong demand” from its business customers for digital services.
Vodafone’s now expecting EBITDAaL of €11.3bn-€11.6bn for the year ending 31 March 2026 (FY26) and adjusted free cash flow of €2.4bn-€2.6bn.
Will it continue?
But the group’s embarked on turnaround plans before. And they’ve failed. This could be a false dawn.
And even though Germany might be on a “improvement trajectory”, revenue is still falling. Despite recent problems brought about by a change in law regarding the bundling of TV contracts, the country still accounts for 34% of turnover.
Also, telecoms assets are expensive. It’s true that the group’s managed to bring its debt down. But this has been achieved by selling some of the ‘family silver’, most notably its divisions in Spain and Italy.
My view
However, I’m optimistic. I’ve long believed that the group’s undervalued compared to its peers.
I think its enterprise value (EV) – defined as market cap plus net debt — relative to its earnings proves that the shares still offer good value. EV’s widely used in the world of mergers and acquisitions as it more accurately reflects what someone would have to pay for a business.
By coincidence, BT also reported its first-quarter’s results yesterday. They were so well received that its share price leapt 10.4% and the group’s now overtaken Vodafone as the FTSE 100’s most valuable telecoms company.
But it has a slightly higher EV/EBITDAaL than Vodafone.
| Stock | Market cap (£bn) | Net debt (£bn) | Enterprise value (£bn) | FY26 forecast EBITDAaL (£bn) | EV/EBITDAaL |
|---|---|---|---|---|---|
| Deutsche Telekom | 137.0 | 115.1 | 252.1 | 39.2 | 6.4 |
| BT | 21.9 | 19.8 | 41.7 | 8.1-8.2 | 5.1 |
| Vodafone | 20.9 | 29.0 | 49.9 | 9.9-10.1 | 4.9-5.0 |
If the two were valued on the same basis, Vodafone’s share price would be up to 7.5% higher. Compared to Deutsche Telekom, the gap’s even bigger. Europe’s largest telecoms group trades on a much larger valuation multiple than both of the British groups.
I’m hopeful that other investors will soon recognise this and help ensure that the recent good run in the group’s share price continues. Due to its attractive valuation, reasonable dividend (no guarantees, of course), and a strong presence in its key markets, I think it’s a stock for investors to consider.
