Investing.com — BofA Securities cut its rating on to “underperform” from “neutral” rating and slashed its price objective to 98 pence from 115 pence, citing a structural shift in the company’s earnings mix toward emerging markets that its current valuation does not reflect.
Shares fell 2.11% to 108.975 pence in London trading as of 05:53 ET (09:53 GMT).
Analysts said that by fiscal year March 2028, when Safaricom is fully consolidated, approximately 55% of Vodafone’s operating free cash flow will come from emerging market operations, up from 41.5% in fiscal year 2025, with hyperinflationary Türkiye adding “further opacity to forecasting.” The ADR price objective was cut to $13.13 from $15.55.
“Applying prevailing EM cash flow multiples implies should trade at a >1x discount to these peers on unlevered cash flow, yet it currently trades in-line,” the broker said, supporting the case for a de-rating.
The EBITDAaL mix shifts to 56:44 developed-market versus emerging-market by fiscal 2028, from 67:33 in fiscal 2026, driven by full Safaricom consolidation and a structurally weaker Germany.
The cash flow mix flips further to 45:55 developed-market versus emerging-market. This compares to peer Orange at 70:30 and Telefonica at 54:46 on the same basis, per BofA Global Research estimates.
Germany remains central to the bear case. BofA forecasts German EBITDAaL declining from €4.13 billion in fiscal 2027 to €3.97 billion by fiscal 2029, with broadband and mobile customer losses trending around 1.5% decline.
The analysts note approximately €300 million of high-margin 1&1 wholesale revenues are expected to migrate away over time, and that Vodafone’s cable network “is not a perpetuity technology,” potentially requiring incremental capital expenditure beyond current forecasts.
On the 1&1 acquisition risk, Wright warned that a deal at share prices between €20 and €40 per share would push Vodafone’s post-deal leverage to between 2.85 times and 3.13 times, against a stated target of 2.50 times, creating a gap to target of between €4.32 billion and €7.86 billion.
Bank of America said foreign exchange pressures are likely to weigh more heavily on Vodafone than some European peers, estimating a weighted two-year forward currency depreciation impact of about 8% on EBITDAaL, compared with 2% for Orange and 9% for Telefónica, based on Bloomberg forward curves for the Turkish lira, South African rand and Brazilian real.
The brokerage valued Vodafone using a sum-of-the-parts methodology, applying a 7-times EBITDAaL multiple to its UK business, valuing it at €14.43 billion, 6-times to Germany at €24.76 billion, 5-times to its African operations and 3-times to Türkiye.
After deducting net debt of €30.19 billion, minority debt of €1.40 billion, spectrum liabilities of €2 billion and restructuring charges of €2.73 billion, and applying a 10% corporate governance discount, BofA arrived at an equity valuation of €1.13 per share, equivalent to 98 pence.
BofA Global Research forecast Vodafone’s fiscal 2027 revenue at €44.14 billion and adjusted EBITDAaL at €13.09 billion, rising to €45.84 billion and €14.04 billion, respectively, in fiscal 2028.
The brokerage projected free cash flow of €2.83 billion in fiscal 2027 and €2.87 billion in fiscal 2028, compared with Vodafone’s guidance midpoint of €2.75 billion for fiscal 2027.