The last five years have been pretty rough for the Vodafone (LSE:VOD) share price. Crippling debt, a change in management, and a corporate restructuring have all caused the shares of the telecommunications giant to tumble by over 30%. And yet, looking at the analyst projections for 2025, there’s a chance that Vodafone shares are on the verge of a comeback.
A return to profitable growth
Under new leadership, Vodafone has been shedding its non-core businesses to raise funds and pay off its troublesome debt pile. The latest of these disposals is its Italian operations, which are being sold to Swisscom for €8bn (£6.75bn).
However, as of December, the Competition and Markets Authority (CMA) gave the green light for the long-awaited merger of Vodafone’s UK business with Three. This was partially based on the condition that Vodafone invests £11bn into the UK’s 5G network infrastructure – something management agreed to do.
However, a big problem with rolling out telecommunication infrastructure such as 5G networks is the high cost. Having a large number of customers makes this far more affordable as the expense is spread out over more customer accounts. Luckily, that’s exactly what this merger deal provides for Vodafone.
With the scale of its UK operations now in a far more favourable position, the fixed-cost nature of its expenses should pave the way for higher margins. And that brings Vodafone one step closer to returning to profitable growth.
Problems in Europe
Despite encouraging progress in the UK, Germany – Vodafone’s core market – remains troublesome. Further price increases have led to another 88,000 customers walking out the door while also dragging the top line in the wrong direction.
The continued lacklustre performance in Germany has also resulted in 3,100 employees getting put on the chopping block to reign in costs. While it’s good to see management keeping a close eye on expenses, this also signals that Vodafone doesn’t expect German growth to return anytime soon. In the meantime, there’s still almost €60bn (£50.6bn) of debt on the balance sheet to worry about.
Share price predictions
While Vodafone still has a long list of improvements it needs to make, the success of the Three merger should help solve a lot of headaches. And looking at the most optimistic outlook from analysts, the Vodafone share price could hit up to 143.01p over the next 12 months. In other words, the stock might have doubled by this time next year!
As exciting as that prospect sounds, not everyone’s in agreement. More pessimistic outlooks indicate shares could, in fact, fall by another 20% to 58.89p should things go badly.
All things considered, I’m not tempted to invest right now. Instead, I’m waiting to see whether the merger will deliver on its performance promises.
