Picture supply: Vodafone Group plc
Since January 2025, each Vodafone’s (LSE:VOD) and BT’s (LSE:BT.A) shares have outperformed the FTSE 100, rising by 46% and 29% respectively. They usually’ve paid some fairly good dividends too.
Does optimistic investor sentiment for the UK telecoms sector imply now’s an excellent time to think about both or each? A bit like a recreation of High Trumps, let’s evaluate the 2.
Magnificence and the beast?
Based mostly on each corporations’ outcomes for the 12 months ended 31 March 2025 (FY25), Vodafone’s income was 60% greater and its EBITDA (earnings earlier than curiosity, tax, depreciation, and amortisation) was 21% extra.
When it comes to valuation, its shares at the moment (19 January) commerce on 14.8 instances historic earnings. BT’s price-to-earnings (P/E) ratio’s a extra engaging 9.7.
MeasureBTVodafoneFY25 complete group income (£bn)20,37032,580FY26-FY28 forecast income development (%)-3.713.1FY25 adjusted earnings per share (pence)18.806.85FY28 forecast adjusted earnings per share (pence)17.608.74FY25 dividend per share (pence)8.163.92FY28 forecast dividend per share (pence)8.414.17FY25 free money movement (£bn)1,5982,548Internet debt (excluding leases) at 31.3.25 (£bn)15,16419,485Share value (pence)182.7101.5Market cap (£bn)17.823.6Source: firm stories/Vodafone figures transformed at 0.87 EUR:GBP/FY = 31 March
Nonetheless, it’s the longer term that basically issues. And that is the place BT seems more likely to battle. If analysts are proper, its income will fall by 3.7% by FY28, and its earnings per share (EPS) shall be 1.2p (6.4%) decrease. In contrast, Vodafone’s anticipated to see a 13.1% improve in its prime line and a 28% enchancment in EPS.
Utilizing FY28 forecasts, BT’s P/E ratio is 10.4 and Vodafone’s is 11.6. Taking these figures in isolation, BT’s shares nonetheless seem to supply higher worth. However Vodafone appears to have the momentum and appears to be entering into the suitable course after experiencing a tough few years.
Robust instances
The group’s been struggling in Germany, the place its dropping clients on account of a change in regulation stopping landlords from bundling TV contracts with tenancies. It’s additionally been wrestling with a big debt pile. To cut back its borrowings, the group determined to downsize.
At 31 March 2025, its web debt (excluding leases) was 1.96 instances FY25 earnings. By comparability, BT’s ratio was 1.93. Analysts aren’t predicting absolute ranges of web debt for both enterprise to alter a lot by FY28, though on condition that they anticipate Vodafone’s earnings to develop, its indebtedness relative to revenue will fall extra.
At present, BT’s debt seems to be marginally extra manageable. However once more, Vodafone’s is displaying an enhancing development.
And with regards to investing, a visual enchancment in monetary efficiency is vital and helps drive a share value greater. BT has a lot going for it. It’s well-managed and retains a robust model. It’s additionally providing a better yield (no ensures, in fact) than the FTSE 100. Nevertheless it seems to be caught.
Last ideas
Provided that I already personal shares in Vodafone, I don’t need to have two British telecoms shares in my portfolio. Having mentioned that, BT’s not for me anyway. With analysts forecasting falling gross sales and a flat backside line, it’s tough to give you a compelling funding case.
In contrast, I reckon Vodafone has rather more potential to develop its earnings, which is why I feel it’s a inventory to think about. Nonetheless, I acknowledge it’s a tricky sector. Infrastructure’s costly and the returns are decrease than in different industries.
However in an indication of confidence in its enterprise, Vodafone says it’s going to extend its FY26 dividend by 2.5% and the merger of its UK enterprise with Three ought to ship some price financial savings. After so many adjustments, it seems to be as if the enterprise is lastly settling down.
Summing up, if I didn’t already personal the inventory, I might give it critical consideration.
