For the Lloyds (LSE:LLOY) share price to reach 100p, the bank’s market cap would have to increase by 93%, to £51.8bn. For Vodafone (LSE:VOD), its stock market valuation would need to be £26.7bn — that’s 42% higher. These figures are based on the closing prices on 28 March.
A history lesson
The chart below shows that as recently as Easter 2023, the telecoms giant was valued at this level.
Looking back five years, Lloyds stock market valuation peaked in March 2019, when it was close to £49bn. But it was over £52bn towards the end of 2015.
Chart by TradingView
Therefore, history tells me that the telecoms giant is more likely to reach £1 first.
But as Warren Buffett once warned: “If past history was all that is needed to play the game of money, the richest people would be librarians“.
Troubled times
However, Vodafone appears unloved at the moment. To try and reverse this, the company has embarked on yet another restructuring exercise. It’s hoped that a much leaner (and more efficient) business will emerge.
Central to its plan is its decision to sell its divisions in Spain and Italy. This will wipe €2bn off EBITDAaL (earnings before interest tax, depreciation, and amortisation, after leases) but should improve its return on capital employed by at least one percentage point. And €8bn of the proceeds has been earmarked to reduce the company’s huge debt.
But with lower earnings, investors are going to have to apply a higher earnings multiple to the stock for it to hit £1.
Europe’s largest telecoms provider, Deutsche Telekom, had an EBITDAaL of €40.2bn in 2023. Its stock currently trades on 2.77 times earnings. If Vodafone could achieve a similar valuation, its post-restructuring share price would be 101p.
| FINANCIAL YEAR | ADJUSTED EBITDAaL (€bn) |
|---|---|
| 2016 | 14.2 |
| 2017 | 14.1 |
| 2018 | 14.7 |
| 2019 | 13.9 |
| 2020 | 14.9 |
| 2021 | 14.4 |
| 2022 | 15.2 |
| 2023 | 14.7 |
However, it’s decided to cut its dividend in half. Although the stock is still yielding 4.5%, which is more than the FTSE 100 average of 3.9%, it’s hard to forget that shareholders received over three times more in 2018 than they could in 2025.
A dark horse
The Lloyds share price has had a good run lately. Since releasing its 2023 results on 22 February, the bank’s stock has risen in value by just under 20%.
However, using most common valuation metrics, it still appears undervalued.
Its price-to-book (PTB) ratio is 0.82, which means its market cap is less than the value of all its assets less liabilities. And as the chart below shows, it was much higher before the pandemic. Based on its 31 December 2023 balance sheet, a PTB ratio of one suggests the bank’s shares should be worth 44% more.
Chart by TradingView
Earnings per share were 7.6p in 2023. With interest rates forecast to fall soon, analysts are expecting this to drop to 6.6p in 2024, before recovering in 2025 (7.8p) and 2026 (8.9p). The bank’s trailing 12-month price-to-earnings ratio is currently 6.8. Applying this to the 2026 forecast implies a share price of 60p.
My conclusion is that even though Lloyds stock looks undervalued, it’s unlikely to double in value any time soon. I think a 100p price target is a bit of a stretch.
As for the Vodafone, I believe £1 is attainable. But it might take a while as investors ponder whether the restructuring exercise is going to deliver what the directors have promised.
