Stockwatch: what next for BT and Vodafone shares?

Illuminated Vodafone logo at the Mobile World Congress in Barcelona, Spain, March 2025. Credit: Xavi Torrent/Getty Images.

Are the 2025 rallies in FTSE 100 shares BT Group (LSE:BT.A) and Vodafone Group (LSE:VOD) justified or vulnerable to profit-taking – especially if markets lose their exuberance?

Adjusting for an early April drop and rebound in relation to US tariffs, the UK index is up nearly 10% from 8,495 at the end of April to 9,266 currently. Over the same time frame, BT has risen 24% from 172p and Vodafone by 23% from 72p, implying an outperformance that has been significantly driven by reallocation to London-listed telecom giants.

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By way of comparison, Deutsche Telekom AG (XETRA:DTE) has managed just a 2% rise from €31 with its 7 August half-year results despite numbers in line with expectations; a concern being second-quarter weakness in its domestic market. Mind you, Germany is Vodafone’s largest market constituting 35% of its service revenue, which was 82% of group total in the March 2025 financial year.

BT and Vodafone’s charts are similar in 2025, although Vodafone is recovering from a sharper de-rating post 2021-22. On a five-year view, BT has broken out from 2021-22 highs around 200p, testing 223p in July versus 215p currently. This represents a 12-month forward price/earnings (PE) around 12x and a 3.9% prospective yield covered 2.1x by consensus earnings, exacted from an asset base of 130p per share, of which 96% constitutes goodwill/intangibles.

Source: TradingView. Past performance is not a guide to future performance.

Close to 88p currently, Vodafone’s forward PE is around 11.5x and the yield 5.0% covered around 1.8x by consensus earnings. It has the ostensibly stronger asset base - 183p net assets per share, with 62% constituting goodwill/intangibles.

Source: TradingView. Past performance is not a guide to future performance.

You could say by way of initial comparison that the rallies are catch-up with Deutsche Telekom AG, which at €31.3 trades on around 13x expected earnings. DTE has, however, also rallied strongly since April from around €22 to €31.3 albeit in the context of an overall rally from 2022 versus UK shares de-rating:

Source: TradingView. Past performance is not a guide to future performance.

Narratives from telecom giants are frequently a mixed bag

I concede that when previously drawing attention to BT and Vodafone as “buys”, this was initially in response to BT’s yield at 102p per share in October 2020, implying nearly 8%, with payouts guided to resume in the March 2022 financial year. Later with Vodafone at 67.7p in March 2024, the finance director bought over £1.7 million worth of shares at 69.6p and the chair £68,000 worth at 69p. This seemed too big to ignore despite the likelihood of any turnaround requiring time.

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I have updated retaining “buy” for example in July 2024 when BT was priced at 140p and Vodafone 72p. With both CEO’s narratives in a “much remains to be done” mode, you could interpret that positively by way of scope to improve but also requiring time. As for the investment rationale, there was a trigger for both shares too significant to ignore given that telecoms are a strongly cash-generative essential service industry.

In May, BT shares responded to the CEO proclaiming “an inflection to £2 billion normalised free cash flow in 2027 and £3 billion by the end of the decade”. Vodafone has demonstrated (see table below) a free cash flow record often substantially in excess of earnings. Yet the operations stories from both have often involved setbacks in some areas offsetting progress in others – enough to leave investors seeking total return wondering.

Vodafone - financial summary
year end 31 Mar

Source: historic company REFS and company accounts.

BT’s pension liabilities – around three times its market capitalisation as of last year’s calculations, with the deficit increasing – have also impeded perception, while Vodafone’s should nowadays be fully funded. Moreover, BT’s March year-end net gearing was around 160%, its net interest charge swallowing 29% of operating profit. Vodafone’s net gearing is around 66%, generating a €1,067 million (£922 million) annual net interest charge, which extended its operating loss to a €4,169 million net loss to March 2025.

BT Group - financial summary
year end 31 Mar

Source: historic company REFS and company accounts.

Such financial liabilities have previously – and justifiably – weighed on sentiment, hence it is interesting how both shares have shrugged them off in rallying consistently from April. They reflect how the overall market mood has become “risk-on”, which one might say also applies to the reality of US tariffs and the UK’s dire fiscal position.

German investors seek excuse to take profits

Deutsche Telekom has been in a correction phase; its shares extended to €29.50 after the 7 August interims despite domestic revenue only 1.3% easier amid stronger competition. This will always be a liability for telecoms in any developed market. Vodafone’s Q1 2026 update on 24 July reiterated this in mobile, which was nearly counterbalanced by growth in German wholesale. In term of reported revenue, however, Germany slipped 3.2% like-for-like having been down 6.0% in Q4 (January to March) due to a change in TV law.  

It begs the question if such a “normalised” view is fair – albeit certainly appropriate to detail – given occasional changes like this are inherent to the industry and affect shareholder value.

I favour Vodafone in comparison with Deutsche, possibly BT as well, given its developing countries’ exposure where growth looks to have traction. Africa has seen organic service growth up 13.8% after 13.5% in Q4, driven by demand for data and financial services. Its business services side grew 4% in Q1 amid strong demand for digital services across Europe and Africa.

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But lower international sales were blamed by BT at its annual results for a 2% slip in revenue, with profit and free cash flow growth rescued by cost control and transformation initiatives.

Utility-type revenues are generally seen as defensive in the UK given that contracts are pegged to the inflation rate and it can be a hassle to switch provider. While BT can be undercut by cheaper rivals, I find the overall package and benefits for broadband and mobile hard to beat, so perhaps I exemplify why BT has quality UK consumer revenues.

Yet Vodafone’s Q4 growth of 3.1% eased to 0.9% in Q1 of the March 2026 year due to a decline in business revenues, despite growth in consumer and wholesale. Business-related operations would seem exposed if the chancellor weighs in with further taxation this autumn, rather than primarily targeting individuals. At least Vodafone’s merger with Three at the end of 2024 should provide scope to enhance service which could mitigate risk of a UK stagflation scenario.

Options exercising and share selling at BT

Commercial twists explain why share traders largely default to essential signals such as yield, director dealings and price charts.

In that respect I question BT’s ongoing momentum given that four of its executive directors have been exercising options and selling shares at 109p to 222p since June. Yes, some of this is only to pay tax arising and keep the shares remaining, but from four substantive share sales around option exercising, the CEO looks to be a net seller into recent strength.

Options-related activity can be tricky to interpret because executives often sell them out anticipating fresh grants, but that reinforces how directors and shareholders face risk/reward unequally, with directors eliminating downside risk then being awarded exposure to upside.

Yes, seven Vodafone executives have also exercised options and sold shares at around 83p on 28 July, although these were part-sales to pay tax on the gain from 0p options. It was also encouraging how, from May and June, six executives bought a total £767,000 worth of shares in the market just like anyone else.

Tilting to favour Vodafone for now

This is an essential view but in terms of Vodafone’s overall growth potential – Africa, and “something new” by way of the Three merger – it's possibly lower financial risk than BT, plus there's genuine director buying, so I retain a “buy” stance. You might wish to see whether Mr Market is generally overdue a tantrum, and if the price retreats a bit.

Much for both FTSE 100 shares depends on the overall market context, where in due respect BT is firming at over 214p this morning despite jitters over President Donald Trump firing a Federal Reserve governor. A near 4% prospective yield looks fairly priced – if not at its best – for industry risks, hence I adjust to “hold”.

Edmond Jackson is a freelance contributor and not a direct employee of interactive investor.

Head of ii Editorial Lee Wild owns BT shares.