Investing.com -- Barclays Capital upgraded British telecommunications giant Vodafone Group Plc (LON:VOD) to “overweight” from “equal weight” and raised its price target to 120 pence from 100 pence on Monday, citing expectations of a strategic turnaround after years of declining earnings.
The upgrade reflects confidence that 2026 will mark an inflection point as the London-based telecom operator rediscovers a "challenger mindset" in UK broadband while stabilizing operations in Germany and maintaining growth in Africa. The new price target implies 27.8% upside from the December 5 closing price of 94 pence.
Vodafone has already outperformed its sector this year with 46% gains compared to 13% for the broader telecommunications sector, driven by improving operational trends and stabilizing earnings revisions.
The company enters 2026 with momentum, posting 5.7% year-over-year organic service revenue growth in fiscal first half and EBITDA tracking toward the upper end of €11.3 billion to €11.6 billion guidance, according to Barclays.
The UK market represents the primary growth engine, benefiting from the Three UK integration that unlocks £700 million in cost and capital expenditure synergies while accelerating 5G deployment.
Barclays projects fiscal 2027 EBITDA of €11.92 billion, representing approximately 5% organic growth, with Europe growing 1.7% to €7.9 billion largely driven by UK performance.
The brokerage forecasts adjusted equity free cash flow of €2.63 billion for fiscal 2027 with net debt of €25.4 billion, representing 1.9 times net debt to EBITDA.
The telecom operator is trading at an unlevered free cash flow yield of 7.1% in FY2027 and 7.6% in FY2028, above the sector average of 6% and 6.9%, respectively. Its equity free cash flow yield is 10.4% in FY2027 and 12.1% in FY2028, also higher than the sector’s 7.8% and 9.5%.
Barclays sees return on capital employed reaching 5.3% for fiscal 2027 and 5.7% for fiscal 2028.
Germany presents a more complex picture. While headline numbers show material improvement from 1&1 traffic migration, core trends remain negative with average revenue per user pressure and persistent competitive intensity.
The German market share has declined to 20% in third quarter 2025 from 29% in second quarter 2021, reflecting intensifying competition.
Africa and Turkey continue delivering double-digit EBITDA growth, providing crucial support for group performance.
Key risks include continued competitive pressure in Germany’s promotional market, where alternative network providers are capturing all broadband net additions, and foreign exchange volatility affecting approximately one-third of consolidated EBITDA from African markets.
In UK wireless, the combined Vodafone-Three entity held approximately 32% total subscriber market share in third quarter 2025, while in fixed broadband the company maintained 6% market share as the sector shifts toward fiber-to-the-premises technology, which now represents 35% of the market compared to 4% in first quarter 2022.
