Investing.com -- Berenberg raised its price target on Vodafone to 140 pence from 123 pence, citing stronger forecasts following the telecoms group’s first-quarter results, while keeping its "buy" rating.

The brokerage also factored in Vodafone’s acquisition of the remaining 49% stake in VodafoneThree and a recent European Court of Justice ruling against historical price increases. It separately initiated coverage of Vodafone’s U.S.-listed ADRs with a "buy" rating and an $18.50 price target.

Vodafone shares closed at 124 pence on Oct. 1, while its ADRs closed at $16.28.

Berenberg now expects Vodafone’s fiscal 2027-29 core earnings to grow 1% to 2% annually on a like-for-like basis, with Safaricom and VodafoneThree fully reflected in its forecasts. It raised its adjusted free cash flow estimates by 7% to 9%, helped by modestly higher earnings forecasts and lower assumptions for payments to minority shareholders.

The brokerage forecasts fiscal 2027 free cash flow of 2.89 billion euros, at the top end of Vodafone’s 2.6 billion to 2.9 billion euro guidance range. It expects free cash flow to grow at an annual rate of more than 10% between fiscal 2026 and 2030, from 2.62 billion euros in fiscal 2026. Net debt is expected to stand at 2.4 times core earnings at the end of March 2027.

Berenberg continues to include Safaricom in its forecasts despite a recent Kenyan High Court ruling that invalidated Vodacom’s $1.6 billion purchase of a 15% stake in the company from the Kenyan government.

The brokerage also highlighted potential consolidation in Germany. Vega, owned by French telecoms entrepreneur Xavier Niel’s family, acquired about 16% of Vodafone’s voting rights from Etisalat in July and later increased its stake to around 19%.

Berenberg said this could raise the prospect of Vodafone acquiring German rival 1&1, which could accelerate consolidation in the market. It estimates Vodafone could fund such a deal without issuing shares and eventually increase free cash flow by 25% to 30%. Vodafone’s existing national roaming agreement with 1&1 could also give it an advantage over a potential deal involving Telefónica.

The brokerage said Vodafone trades below the European telecoms sector on its preferred valuation measure, at 0.35 times estimated 2028 enterprise value to business invested capital, versus about 0.6 times for the sector.

Berenberg identified Vodafone’s UK capital markets day on Oct. 8 as a near-term catalyst and said further German telecom consolidation could be one of the sector’s most likely deals.

Risks include weaker-than-expected execution of the Three UK merger, which could delay planned cost savings, and continued price competition in Germany, which could weigh on service revenue over the next 12 months.

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