Vodafone is finally dialling up growth after years in the doldrums
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After more than a decade in the doldrums Vodafone shares have shown a remarkable recovery, delivering more than 70% in total shareholder returns in just the last 12 months, making them one of the top 10 performing shares in the FTSE 100 index.
What has driven the strong performance?
The UK’s biggest telecommunications group has cleaned up its once sprawling empire by selling underperforming European assets, returning proceeds to shareholders, and reducing net debt by around €10 billion.
This strengthening of the balance sheet has removed a prior ‘overhang’ holding back the shares. Reducing debt also increases the proportion of profits available to shareholders as opposed to creditors.
This is often referred to as ‘equity transfer’ which can be a powerful driver of shareholder returns.
Vodafone has repurchased €3.5 billion of its shares since May 2024 with an additional €500 million programme launched in February 2026, part funded by disposal proceeds.
Management have proactively redeemed long-dated debt and issued new lower-cost debt.
Against these shareholder friendly moves Vodafone rebased dividends by 50% to €0.045 per shares in 2025 to create a more sustainable payout. This followed a 40% reduction in 2019 to €0.09.
Alongside this, Vodafone has committed to a progressive dividend policy and announced a 2.5% increase in the current 2026 financial year, the first increase in eight years.
Why did Vodafone merge with Three UK?
The Vodafone-Three UK merger completed in May 2025 with the combined operating company branded VodafoneThree. Vodafone holds 51% of the new entity with Three’s parent company, Hongkong-based CK Hutchison owning the rest.
The merger promises to improve operating efficiencies, leading to wider national coverage and faster speeds. It will position VodafoneThree as a leading European 5G provider, enabling advanced services for consumers and enterprises.
Vodafone plans to invest £11 billion in the UK network over the next decade, including £1.3 billion in the first year to accelerate 5G deployment.
It anticipates cost and investment synergies of around £700 million a year by 2030, which it believes are worth more than £7 billion excluding any revenue synergies.
The transaction is expected to be boost free cash flow from the 2029 financial year onwards, once integration costs roll off.
How does Vodafone make money?
Vodafone generates most of its revenues from selling connectivity and digital services to consumers and businesses on a recurring subscription basis across Europe and Africa.
It sells monthly and prepaid contracts for voice, messages and data, which is the core revenue engine. The company increasingly sells bundles (mobile, fibre, TV) which supports higher revenues per subscriber with lower churn.
Vodafone provides similar services for businesses plus integrated technology solutions like cloud computing, cybersecurity, and data centres.
Increasingly everyday items like cars and smart meters are connected and run on Vodafone’s IoT (Internet of things) platform, which is managed by Vodafone and generates usage-based and subscription revenues.
In several African markets Vodafone runs a mobile money platform called M-Pesa which earns fees on transactions, transfers and related financial services.
Vodafone earns roaming fees from other operators using its network and generates income form infrastructure assets like masts and rooftops. The bulk of this income is from tenants on long-term, inflation-linked contracts.
What is Vodafone’s strategy?
The company wants to continue its current path of simplifying the business and improving customer experience which is expected to lead to sustainable growth.
The plan is to exit sub-scale, low-return regions like Italy and Spain and concentrate on markets where Vodafone holds leading market positions like the UK, Germany, Africa and Turkey.
More mature markets like the UK and Germany are seen as stable, cash generative businesses with stronger growth expected to come from Africa and business-to-business digital services.
Are there specific financial targets?
Vodafone recently guided for mid-single digit revenue growth and multi-year growth in free cash flow from an anticipated 2026 base level of between €2.4 billion and €2.6 billion.
Within the modest sales growth number Africa is expected to continue growing at double digits driven by rapid expansion in mobile data and financial services.
The company is also aiming to increase the share of group sales from enterprises to around a third.
Looking at the balance sheet Vodafone wants to maintain an investment grade rating, which means it is seen as a stable, low risk borrower with adequate cash flows to service its debts.
Capital expenditure as a proportion of revenue is expected to remain stable while still funding the modernisation of its network and IT systems.
What does the competitive landscape look like?
Competition is intense from incumbent national telecom providers as well as MVNOs (mobile virtual network operators) across the UK and Europe. In the UK Three is known for fast data speeds while EE leads on 5G coverage.
Virgin Media O2 and BT/EE are strong rivals in fixed-mobile bundles and broadband while there are many MVNOs including Asda and Tesco Mobile, Lebara, Sky Mobile, Giffgaff, and Smarty among others.
European incumbents also operate outside their home territories with Deutsche Telekom active in Central and Eastern Europe, plus it has a majority stake in T-Mobile US, while Orange operates in Spain and Telefonica also operates in Germany.
There is global competition in the enterprise space from US companies like Verizon and AT&T for connectivity and security and end-to-end managed services.
Despite these constant pressures Vodafone seems well positioned to defend its leading market positions in mature markets and exploiting growth in faster growing regions.
How do sector valuations stack-up?
While Vodafone’s PE (price-to-earnings) ratio has expanded over the last year, it trades at a discount to European peers Deutsche Telekom and Orange.
This reflects the German carrier’s better growth profile backed by a dominant 5G lead in the US and Germany, while Vodafone has only recently returned its German business to growth.
French operator Orange has fully integrated its Spanish unit MasOrange and finished its French fibre roll-out, allowing it to generate reliable cash flows. The company also benefits from double-digit growth in its African operations.
Closest UK rival BT trades at a price to earnings discount to Vodafone which reflects the slow erosion of its wholesale monopoly as customers switch to alternative networks.
Martin Gamble: Shares and Markets Writer
Martin Gamble is Shares and Markets writer at AJ Bell. He was previously the Education Editor of Shares Magazine. He has been with the business since 2019.
Martin graduated from the University of Kent in...
