Since the start of 2025, Vodafone (LSE:VOD) shares have been steadily marching upwards as management continues to make progress in its turnaround efforts.
In fact, improving investor sentiment has helped bolster the international telecommunications giant’s market-cap by 26% over the last eight months, delivering a total return closer to 30% after dividends. As such, anyone who put £20,000 to work earlier this year is now sitting on around £26,000.
What’s next?
As a quick reminder, under the fresh leadership of Margherita Della Valle, Vodafone’s currently undergoing some restructuring. The CEO has sold off underperforming segments of the business, raising capital to pay down debt as well as refocus operations on three core markets: the UK, Germany, and Africa.
For the UK and Africa, things are seemingly going rather well. The group’s recently completed merger with Three UK has vastly expanded its British market share, adding millions of new 5G customers to its roster, and opening the door to £700m in projected annual cost savings.
Meanwhile, its African fintech payment solution M-Pesa continues to drive impressive double-digit revenue growth with just over 26 million active users as of July.
These cost savings and growth tailwinds have put the business on track to reach between €2.4bn and €2.6bn in underlying free cash flow by the end of its 2026 fiscal year (ending in March). At least, that’s what management’s recently reiterated as its target, providing more financial flexibility to continue de-leveraging its balance sheet.
Risk versus reward
Despite the encouraging performance of its UK and African operations, Germany remains troublesome. The German market is intensely competitive. And with far cheaper internet and mobile packages from rival communication providers, alongside recent regulatory changes, Vodafone’s market share is under siege.
With Germany responsible for 34% of the group’s service revenue, the impact of competitive pressures is offsetting a large chunk of the gains made in other regions. To management’s credit, the rate of revenue loss in this critical market has slowed. And according to Della Valle, Vodafone’s German business is “close to returning to growth” with the segment recently reporting improving customer satisfaction scores.
Nevertheless, even with these green shoots of recovery, there remains uncertainty about whether Vodafone can deliver the promised turnaround.
The bottom line
Despite initial scepticism from investors, Della Valle seems to be making the right moves. Vodafone’s financial position has notably improved under her leadership. And while there’s still an enormous pile of debt & equivalents to tackle, the steady expansion of free cash flow should help reduce this burden over time.
However, with over €53bn to sort out, the recovery journey could be a long one. It’s definitely a stock worth a closer look. But with other growth opportunities to explore, I’m not looking to buy any Vodafone shares today.
