Barclays downgrades Vodafone despite 1.2% growth in German service revenue
Key Facts
Barclays downgraded Vodafone shares to "underweight", according to a report published by StreetInsider, following an earlier downgrade of the telecommunications group. The bank had lowered the stock to "equal weight" from "overweight", according to a report published by Investing.com in June. That earlier assessment cited continued deterioration in Germany, which the report described as the company's largest market. The latest decision puts Barclays' rating below the level adopted in that earlier assessment. The downgrade comes as Vodafone reported a return to organic growth in German service revenue, which rose 1.2% in the first quarter of fiscal 2027.
Profitability in the German business declined in fiscal 2026, according to Vodafone's preliminary results, as pressure persisted on its mobile and television operations. Adjusted earnings before interest, taxes, depreciation and amortisation after leases totalled 4,243 million euros, compared with 4,384 million euros in the previous fiscal year. That represented a reported decline of 3.2%, while the organic decline was 3.3%. The company attributed pressure on mobile average revenue per user to intense competition, alongside the continued decline in its television business. In its report on Barclays' earlier downgrade, Investing.com said German mobile contract average revenue per user fell to 16.48 euros in the fourth quarter of fiscal 2026, compared with 17.08 euros a year earlier.
At group level, Chief Executive Margherita Della Valle said in the first-quarter update for fiscal 2027 that growth extended across all Vodafone segments. She added that service revenue rose 5.2% organically during the period, compared with the slower growth recorded by the German business. She described the group's performance as "broad-based growth across all our segments", according to the company update. In an assessment differing from Barclays' stance, Berenberg maintained its buy rating on Vodafone ordinary shares, according to a report published by Investing.com in early October. The bank raised its price target to 140 pence a share from its previous estimate of 123 pence, combining its unchanged buy recommendation with a higher target price.
In artificial intelligence, Vodafone announced a commitment under its partnership with Microsoft to invest $1.5 billion over 10 years in cloud and customer-focused AI services. The commitment, announced in January 2024, covers services developed in collaboration with Microsoft, according to the company's partnership statement. Vodafone is using generative AI to enable its "Ask Once" customer service initiative in Germany, according to its investor presentation. The company also said initial trials of its "SuperTOBi" assistant showed a 50% improvement in resolving customer issues on first contact. The reported improvement covered critical service journeys, including complex billing enquiries, during the company's initial trials of the assistant.
In the United Kingdom, VodafoneThree is targeting annual run-rate savings of 1.0 billion pounds by fiscal 2032, according to its investor presentation. The target refers to the annual rate of savings once fully realised, according to the company's wording in the presentation. Alongside the savings target, VodafoneThree confirmed it was on track to invest 11 billion pounds. The capital investment programme spans 10 years, according to the company's investor briefing. It said in the presentation that it was "on track" to deliver this investment, alongside work to achieve the targeted annual savings.
For fiscal 2027, Vodafone's guidance includes group adjusted earnings before interest, taxes, depreciation and amortisation after leases of between 13.0 and 13.3 billion euros. The range formed part of the financial guidance presented to investors with the company's business update. The group is also targeting adjusted free cash flow of between 2.6 and 2.9 billion euros in the same fiscal year. The guidance covers group performance, while the announced operating updates include service revenue growth in Germany and across the segments combined. Vodafone is scheduled to report first-half results for fiscal 2027 on 10 November 2026, according to the financial calendar published on its investor website.