Berenberg upgrades Vodafone to 'buy', sees higher growth than at BT

In the past, the firm has suffered from all of the ills that afflict the sector, a lack of growth, excessive debt and complexity.

But the broker expected that from 2021/22, Vodafone would post "consistent" revenue growth, allowing it to pare its debt to the bottom end of its target range as a proportion of earnings before interest, taxes, debt and depreciation of 2.5 to 3.0 times.

The analysts also expected Vodafone to continue making progress on simplifying its portfolio.

Other drivers for the firm's performance were expected to be its continued focus on mobile, the benefits that accrue from being a 'challenger' and not an 'incumbent' and its "large" exposure to the German market "which has a segmented, two-tier market structure, and has shown over time that it can grow broadly in line with GDP."

Vodafone derived approximately 55% of its revenues from mobile, versus 30-50% for most other large-capitalisation peers.

As an aside, they added: "We would characterise BT [buy] as having more actionable catalysts over the next six to nine months to stimulate a re-rating. However, Vodafone is the higher growth story, which we would be more comfortable holding for a multi-year period."

They also said that, trading on 6.1 times its estimated EV/EBITDA for 2021/22, against the sector average of 7.2 times, Vodafone's shares were "cheap".

Their target price was revised higher from 148.0p to 155.0p.