What the future might hold for BT and Vodafone shares

The return of BT Group shares to £2 and support for new-look Vodafone as “investable again” are among the 2025 calls of a City bank’s telecoms team.

Bank of America said the European sector had shown its defensive credentials after a year of significant outperformance against wider market volatility.

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Looking into 2025, the bank rolled forward its price target on BT Group (LSE:BT.A) to 208p and said the company is one to watch as a play on its anticipated decline in capital expenditure.

A £1 billion reduction as the full fibre roll-out reaches maturity means the bank believes there’s the potential to re-rate cash flow and dividend.

It believes that BT’s Consumer operations are competing well and that weaker growth in business-to-business can be offset by a potential sale of the exposed operations.

The shares, which were last near 200p in February 2022, are finishing the year strongly after rallying from 105p in May and 136p in early November to about 152p today.

Chief executive Allison Kirkby, who took the helm at the start of the year, told investors last month that BT’s modernisation and focus on connecting the UK had put it in a strong position to “generate significant value for all our stakeholders”.

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She reiterated full-year guidance on earnings, capital expenditure and cash flow but scaled back revenue expectations to a 1%-2% decline rather than the modest rise seen previously.

BT intends to pay a dividend of 2.4p a share on 5 February, while its longer-term guidance shows cash flow growing from this year’s expected to £1.5 billion to £2 billion by 2027.

UBS is more cautious and believes that shares are likely to remain highly volatile. It warns that an easing rate of inflation will lead to lower price rises going forward, while cost savings are being absorbed by revenue declines.

The bank, which has a Sell recommendation and 115p price target, also believes the impact of TalkTalk/Sky shifting business away from Openreach has been underestimated.

The shares of Vodafone Group (LSE:VOD) are finishing the year close to where they started at 70p, having peaked at 78p in September.

Vodafone has undertaken major dealmaking in the 18 months since Margherita Della Valle took charge, including the sale of operations in Spain and Italy, and proposed UK merger with Three.

With the UK tie-up on track to complete by fiscal year end, the “new Vodafone” will be focused on core operations in Germany, the UK and Africa.

Highlighting a price target of 115p, Bank of America said the company looks “investable again”.

It believes the resulting structure should support strong cash returns during restructuring and with dividend upside as UK merger synergies accrue over time.

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The bank said: “What we observe is a text-book 'paid to wait' story, with a covered dividend and two billion euros annual buyback (12% total return) during the most dilutive stage of UK integration.

“Then as restructuring unwinds and synergies accrue, the dividend payout ratio falls to support up to 100% dividend per share upside by the end of decade and a low teens cash yield.”

However, UBS recently lowered its target price to 70p amid concerns that the recovery in Germany is likely to be u-shaped rather than v-shaped.

It said last month: “While four billion euros of buybacks may provide some support for the shares on the downside and there is upside from UK M&A, Vodafone may not re-rate until there is evidence that Germany is turning around.”

ii head of editorial Lee Wild owns BT shares.