The Vodafone (LSE:VOD) share price soared over 7% yesterday (20 Could) following the discharge of the group’s outcomes for the 12 months ended 31 March 2025 (FY25). However after a day of reflection, I nonetheless don’t get it.

All year long, the corporate’s administrators have been telling traders that adjusted EBITDAaL (earnings earlier than curiosity, tax, depreciation and amortisation, after leases) can be €11bn. They usually had been proper. The ‘business as usual’ announcement makes the share price motion a little bit of a puzzle to me.

Generally, it’s onerous to consider that Vodafone was as soon as the FTSE 100’s most respected firm. Its fall from grace has been spectacular. Over the previous 5 years alone, its inventory price is down over 40%.

In distinction to this, Europe’s largest telecoms operator, Deutsche Telekom, seems to go from energy to energy. Since Could 2020, its share price has risen almost 150%. In 2024, its adjusted EBITDAaL elevated by 7.9% whereas Vodafone’s was flat.

Contrasting performances

And it’s their efficiency in Germany that the majority differentiates the 2 teams.

Contributing 32% of income, the nation is Vodafone’s greatest market. For Deutsche Telekom, it ranks second and accounts for 22% of web income. Impressively, the group’s simply recorded its thirty fourth consecutive quarter of EBITDAaL progress within the territory.

However Vodafone’s been badly affected by the change in regulation limiting the bundling of tv contracts in multi-dwelling models. Evaluating FY25 with FY24, income fell 6%, adjusted EBITDAaL was 12.6% decrease and its margin tanked 2.7 proportion factors.

The outlook’s additionally gloomy.

Vodafone’s written down the worth of its German enterprise by €4.35bn. This isn’t a money merchandise nevertheless it displays “management’s latest assessment of likely trading and economic conditions in the five-year business plan”.

Falling debt

Nonetheless, one space the place Vodafone has made progress is in decreasing its gearing.

At 31 March, web debt had fallen to €22.4bn. Over the course of the 12 months, that’s a €10.8bn discount. This has been achieved through the use of the proceeds from the sale of many non-core belongings and divisions. Though spectacular, it should be remembered that the group’s turn out to be lots smaller.

However its indebtedness is now equal to 2 occasions FY25 adjusted EBITDAaL. Deutsche Telekom’s is 2.6 occasions.

Maybe traders will cease utilizing debt as a keep on with which to beat Vodafone? With Germany performing poorly and its return on capital unchanged, there are different weapons obtainable.

Ultimate ideas

I’ve lengthy argued that Vodafone is undervalued in comparison with its friends. And regardless of the considerations I’ve famous above, its FY25 outcomes haven’t modified my view. However I didn’t see sufficient in yesterday’s announcement to justify the 7% improve within the group’s market cap.

When it comes to valuation, Deutsche Telekom trades at 14.7 occasions its newest full-year post-tax earnings in comparison with 11.5 occasions for Vodafone.

For my part, to attain the next valuation, the group must persuade traders that it might probably develop its earnings as a FTSE 100 firm ought to. For FY26, it’s forecasting EBITDAaL of €11bn-€11.3bn. Even on the high finish, that’s a really modest improve.

After reflecting on the outcomes, I’m going to carry on to my shares. Outdoors Germany, the group’s doing okay. Additionally, the inventory pays an above-average dividend which affords some consolation if the share price continues to wrestle.

As for yesterday’s share price response… I don’t know!