In the midst of a massive reorganization of its activities, the British operator Vodafone ended its fiscal year on a high note, with free cash flow significantly higher than analysts had expected.
European mobile operators have been stuck in a rut for too long. Vodafone and its peers need to invest in their networks, but fierce competition—encouraged by regulators who saw it as a way to lower prices and protect consumers—is preventing them from achieving decent returns on investment; prices are barely enough to absorb inflation.
Things are finally starting to change, both in Europe and in the UK. At least on the surface, since consolidation could now be encouraged, provided it promotes major investment programs in network modernization. Vodafone has understood this, and it was by dangling £11bn in capital commitments in front of the UK competition authority that the operator won approval for its merger with Three.
In addition, under the skilful leadership of Margherita Della Valle, restructuring and asset disposals are continuing at a steady pace. Vodafone has thus been able to repay £17bn in debt in two years, bringing its solvency ratios back to levels comparable to those of Orange, or at least better than those of peers such as British Telecom and Telefónica. Moreover, these efforts come at just the right time, with new rate hikes on the horizon.
For the 2025 fiscal year, whose accounts were published yesterday, Vodafone posted a loss following a large write-down of assets in Germany, where the operator lost one of its cash cows in cable television this year. Nevertheless, it still generated free cash flow of £8.7bn, compared with £10.3bn in 2023, the year Della Valle took the helm.
As MarketScreener announced last year, it was necessary to cut back on spending and significantly reduce dividend payments. Nevertheless, the current valuation appears particularly depressed, as Vodafone’s market capitalization represents just 2.3x its free cash flow, and its enterprise value is 5.6x its free cash flow.
Such a valuation reflects the reality of a totally dysfunctional industry. In this sense, the shift in stance by European and British regulators is more than welcome. Backed by Telefonica, Nokia, Deutsche Telekom, Ericsson, and Orange within a European lobbying group, Vodafone warns, however, that these measures are too timid and will not be enough.
According to this group, the aim will therefore be to capture growth in emerging markets, for example in Africa, the Middle East and Turkey. However, the examples of Orange and Telefónica do not entirely support this assumption. See Orange: Taking a step back on this topic.
