Vodafone (VOD): Goldman Sachs sees Vodafone's improving ROIC, UK recovery and efficiency gains supporting a Buy case

Overview

This conference takeaways report examines Vodafone's growth and return outlook following comments from the CEO of Vodafone Europe. Goldman Sachs views the discussion as supportive of its Buy thesis, citing prospective UK growth, progressive AI-enabled cost savings and an improving ROIC trajectory, while recognizing that Germany remains the principal operational uncertainty.

Core views

Management's conference comments were encouraging on cost efficiency and UK growth, but did not signal a material improvement in Vodafone's underlying German market trends. Vodafone sees AI benefits already emerging across operational functions, with new use cases identified monthly. However, management indicated that savings should build over time rather than create the immediate growth step-change suggested by some other operators. Energy-cost exposure is partly protected through three-year rolling hedges that are 90% hedged for FY27, while long-term power-purchase agreements cover roughly one-third of consumption. Goldman Sachs sees a more favorable UK growth setup from both organic improvement and synergy delivery. Vodafone has not signed new wholesale mobile customers after consolidation despite substantial interest in its mandatory wholesale reference offer. The report considers this consistent with its expectation that the expiry of that offer and lower MVNO competitive pressure can allow UK mobile-market repair to support growth from CY27. Vodafone also reported strong progress against announced synergy targets, with organizational integrations largely completed, and plans a UK investor day on 8 October. Germany remains the key weak point. Growth in B2B and consumer broadband is offset by continuing pressure on mobile ARPU, and management has not observed meaningful improvement in mobile competition. Future fixed-line growth is expected to come mainly from ARPU rather than volume; slightly less than half of the customer base remains on speeds below 250Mbps, creating an upsell opportunity. The report also flags uncertainty surrounding the class action over Vodafone's 2023 price increases: a recent ECJ ruling supported the suit, but a final court decision is not expected until 2027. A central investor debate is whether Vodafone has underinvested in German fixed broadband by pursuing measured cable-to-fibre upgrades. Management argues cable remains competitive and broadband KPIs are improving, but concerns remain over top-line durability and the possibility of a larger future fibre capex commitment. Goldman Sachs' broader investment thesis is that accelerating ROIC improvement can drive better relative returns than the sector average and an EV rerating with an outsized equity effect because Vodafone starts from a low EV/IC multiple and has relatively high leverage. Its estimates now exceed company-compiled Group consensus and are no longer below consensus for Europe for the first time in several years. The firm models growth acceleration from CY27 UK market repair, greater focus on cost efficiency and sustainable African growth. It also incorporates ROIC-accretive corporate actions, including consolidation of Vodafone's Kenyan entity Safaricom, the completed July buy-in of UK asset minorities, and the completed August sale of Vodafone's VodafoneZiggo stake. Goldman Sachs retains a Buy rating and a 12-month 155p target price, based on EV/IC relative to ROIC/WACC, implying approximately 19% upside.

Analysis framework

Goldman Sachs combines management commentary with regional operating drivers, including UK competition, German ARPU and broadband trends, cost efficiency and energy protection. It then links these inputs to forecast growth, ROIC improvement versus the sector, corporate-action effects and an EV/IC-to-ROIC/WACC valuation framework.

Methodology notes

• Valuation methods

  EV/IC to ROIC/WACC methodology

  Goldman Sachs bases its target price on the relationship between enterprise value relative to invested capital and Vodafone's expected return on invested capital relative to its cost of capital.

• Corporate Fundamentals and FinanceROIC–WACC spread

  ROIC improvement relative to WACC

  The report argues that a rising return on invested capital, especially from a low starting point, can support a valuation rerating and stronger relative returns.

• Industry AnalysisVolume-price decomposition

  German fixed-line growth driven by ARPU rather than volume

  The report separates pricing and volume effects, expecting fixed-line growth to rely mainly on customer upselling and higher ARPU while mobile ARPU remains under pressure.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Vodafone (VOD.L)

  Primary covered company; Goldman Sachs rates the shares Buy.

  Strengths

  Expected UK growth inflection, synergy delivery, cost-efficiency opportunity, sustained African growth and projected ROIC improvement.

  Weaknesses

  Lower structural quality than sector peers, reflecting German market structure and historical execution.

  Comparison

  Goldman Sachs expects Vodafone's relative ROIC improvement over the next three years to exceed the sector average; its estimates are now above company-compiled Group consensus and no longer below consensus for Europe.

  Risks

  German capex increase, stronger German competition, weaker execution and emerging-markets risk.

Key data

• VOD.L 12-month target price155pGoldman Sachs Buy target price
• VOD.L price130.35pPrice as of 14 September 2026 close
• VOD.L implied upside18.9%Upside to the 155p target price
• FY27 energy hedging90%Covered through three-year rolling hedges
• Long-term PPA coverageOne-third of consumptionProtection for energy costs
• German base below 250MbpsSlightly less than halfPotential fixed-broadband upsell opportunity
• German class-action timing2027Final court decision is not expected until then

Impact & implications

The report argues that UK market repair, synergy execution, sustained African growth and progressively realized cost efficiencies can improve Vodafone's ROIC and relative returns. This could support an EV rerating, though the investment case remains sensitive to German competition, fibre-capex needs, execution and emerging-market developments.

Risks

• A German capex hike could weaken the investment thesis and target-price case.
• Competition in the German market could prove stronger than expected.
• Vodafone could execute less effectively than Goldman Sachs expects.
• Emerging-markets developments could create downside risk.
• The German class action relating to 2023 price rises remains unresolved, with a final decision not expected until 2027.

What to watch

• Evidence that UK mobile-market repair is reducing MVNO-related competitive pressure and supporting growth from CY27.
• Progress against Vodafone's cost-efficiency and AI-use-case initiatives.
• The UK investor day scheduled for 8 October.
• German mobile competition, ARPU trends and fixed-broadband upsell execution.
• The eventual German court decision on the class action over 2023 price rises.
• Any indication that Vodafone will need a more substantial German fibre-capex commitment.