City analyst reveals price target for BT and Vodafone shares

BT shares have rallied over 30% already this year, and once team of experts thinks there’s more to come. Graeme Evans also reveals their outlook for Vodafone.

26th June 2025 14:22

Graeme Evans from interactive investor

A seven-year high for the shares of resurgent BT Group (LSE:BT.A) has been forecast after a City bank adopted an optimistic stance on the European telecoms sector.

Berenberg regards BT as one of its top picks with a price target of 240p, signalling a further 24% upside from today’s 193.5p after a jump of 32% so far this year.

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The bank said the outlook for cash returns in the 2025-30 period meant a European sector known for its defensive qualities was now positioned for “defensive growth”.

It said there was scope for a sharp rise in the BT dividend in the year to March 2027 as the end of fibre network build in December 2026 results in a sharp improvement in cash flow.

The report highlighted a Hold recommendation and 80p target price on Vodafone Group (LSE:VOD), which today traded at 77p after a rise of 12% so far this year.

While the shares screen as relatively cheap versus other European players, the bank notes a turnaround in Vodafone’s largest business in Germany is likely at least six months away.

It added: “Despite the sale of its challenged Spanish and Italian assets, Vodafone’s group structure remains complex while its largest asset, Germany, has underperformed its market for several quarters.”

The bank’s other top picks include Deutsche Telekom AG (XETRA:DTE), Cellnex Telecom SA (XMAD:CLNX) and Telecom Italia SpA (MTA:TIT).

European telecoms companies have outperformed the wider stock market by 8% year-to-date, aided by rising one-year forward earnings expectations. This means the sector now trades on a 11% premium to the wider market, based on a price/earnings multiple.

The completion of fibre and 5G roll-outs and other savings mean Berenberg analysts expect annual compound growth in free cash flow of 10% for the sector over 2025-30.

This compares with zero growth in 2018-24 after “a very painful and prolonged period of lacklustre returns” and share price underperformance versus the wider market.

Berenberg said: “The sector’s ‘defensive’ qualities are well understood by investors, but we are now entering a new phase for the sector, driven by improving cash returns as sector capital and operational intensity fall over 2025-30.”

It expects capital and operational expenditure savings to reach the bottom line, boosting earnings and cash returns.

Service revenue trends have improved compared to the pre-Covid period, leading to a forecast of low single-digit growth going forwards. This differentiates between the “good” in the UK, Spain and Italy, the “bad” in Sweden and the Netherlands and “ugly” in Germany, Switzerland and France.

BT’s consumer division returned to service revenue growth in the second half of the 2025 financial year, and Berenberg expects earnings growth from the latter part of the current year.

The regulated Openreach arm reported 243,000 line losses in the fourth quarter of the 2024-25 year, driven by losses to competitors and a weaker broadband market.

A similar run rate is seen for 2025-26 but the bank believes losses will slow quickly as fibre areas grow and as UK alternative operators struggle.

Berenberg said: “From next year (the year to March 2027), the first capital expenditure cuts will come, and from the year after we include the start of operational expenditure savings from closing the PSTN (analogue telephone) network and gradual decommissioning of copper.

“We forecast an acceleration in Openreach earnings growth from 2% this year to 5% by the end of the decade.”

Head of ii Editorial Lee Wild owns BT shares

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