Vodafone’s stock price hit a 25-year low this month — but sentiment may be turning around. Bank of America analysts upgraded the UK company’s stock to “buy” on Thursday, saying they expect shares to rise by 42% to £1.31 ($1.60) over the next 12 months. Shares have risen 4% to £0.91 since the investment bank’s rating upgrade. The stock also currently offers a dividend yield of 8.4% Following news of Chief Executive Nick Read’s departure, the BofA analysts led by David Wright said they were optimistic about the company’s prospects. The change in management could bring forward investments into Germany, they said, and secure the global telecom operator’s long-term growth potential there. Germany is the British firm’s largest market and accounts for over 40% of its operating free cash flow. “A clear miss has been poor execution in Germany, but this looks to be recovering following management change, while we think mixed execution of digital cost-cutting targets can be reinvigorated,” the analysts said. VOD 5Y line Despite this optimism, BofA’s analysts believe Vodafone will still need to cut dividends by 30% to keep the balance sheet sustainable. The FTSE 100 company has attempted to mitigate those concerns by selling off part of its stake in Vantage Towers, Europe’s largest operator of mobile phone masts. It hopes to recover more than 3.2 billion euros (£2.8 billion) from the sale. Vantage Towers, previously a wholly owned subsidiary of Vodafone, owns 68,000 sites and was spun off from Vodafone in July 2020. The move was part of an asset sale program that began under Read to increase the company’s focus on Europe and Africa. In December, Abu Dhabi-headquartered Etisalat was reported to be in talks to acquire Vodafone’s stake in African telecom operator Vodacom. UBS analysts, who have a buy rating on the stock, valued the potential sale at 7.9 billion euros but warned the deal might dent Vodafone’s free cash flow by 15%. “We think investors could see the news on Vodacom as positive in terms of potentially simplifying the Group, crystallising value and potentially opening the door for M & A elsewhere with the Group CEO having recently stepped down,” said UBS analysts Polo Tang and Dhruva Kusa Shah in a note to clients on Dec. 7. Analysts expect the company’s Nadsaq-listed stock to rise by 27% to $14.28 over the next 12 months, according to the median price target compiled by FactSet. Vodafone’s London-listed shares are seen rising by 32% to £1.22 over the next 12 months.
