Since the middle of June, the Vodafone share price (LSE:VOD) has risen by around a quarter. As we approach Christmas 2025, it’s making steady progress towards the 100p barrier. The last time its shares changed hands for more than £1 was in March 2023.
But the ‘experts’ are predicting little further growth over the next 12 months. With a price target of just under 97p, analysts reckon the group’s shares are fairly priced. However, I’m not convinced. Here’s why.
A quick valuation
For the year ended 31 March 2025 (FY25), the group reported adjusted EBITDAaL (earnings before interest, tax, depreciation and amortisation, after leases) of €10.9bn (£9.5bn at current exchange rates).
Although this measure of profit has its critics, most notably Warren Buffett who objects to its use because it ignores capital expenditure and the associated depreciation, it’s widely quoted in the telecoms industry.
With a stock market valuation of £22.4bn, it means Vodafone trades on 2.4 times historic EBITDAaL.
But in the world of mergers and acquisitions, anyone considering buying the group would more than likely consider its enterprise value (EV) relative to its earnings.
EV is calculated by adding the company’s net debt to its market cap. If EV/EBITDAaL is the preferred measure of private equity firms then it makes sense for anyone considering buying Vodafone’s shares to use the same metric.
Based on its September balance sheet, Vodafone’s net debt is €25.9bn (£22.7bn). But the company excludes leases from its calculation. However, these appear to have all the characteristics of debt to me, including an obligation to repay, therefore I think they should be included.
Adjusting for leases increases the group’s net debt to €38.3bn (£33.5bn). Adding this to its stock market valuation means it has an EV of £55.9bn — 5.9 times its FY25 EBITDAaL.
Looking forward
However, analysts are forecasting EBITDAaL to grow to £10.7bn by FY28. This gives a forward EV/EBITDAaL of 5.2.
But a number of studies suggest a figure of 6.5 is more typical of the industry. If Vodafone could achieve a rating in line with this, its shares would be worth around a quarter more than they are now.
However, to get there, it needs to – at least — meet this forecast. And convince investors that its recent restructuring is likely to deliver long-term results.
Pros and cons
Personally, I’m optimistic. The group’s been selling off some of its underperforming divisions with a view to becoming more efficient. It’s also merged its UK operations with Three. Encouragingly, its FY26 half-year results showed a steady improvement in service revenue, which has now increased for four successive quarters.
But Germany remains a concern. The country’s government introduced a law to prevent the bundling of television contracts with tenancy agreements. And infrastructure in the telecoms industry doesn’t come cheap, which means there’s constant pressure to find more cash.
However, there’s some evidence that the group’s turnaround plan is working. And even though it halved its dividend in 2024, it still remains good for income. It’s presently yielding (no guarantees) just over 4%.
After crunching the numbers, I think the stock’s currently undervalued and that’s why, in my opinion, the group’s share price should do better than the analysts are expecting over the next 12 months. On this basis, I think it’s worth considering.
