Zegona Communications Shares (LON:ZEG) Hit Record High As Analyst Raises PT

Zegona Communications' share price (LON:ZEG) surged to a new all-time high this morning at 1,110p in early trading, propelled by a significantly increased price target from Deutsche Bank. The stock's ascent underscores growing market confidence in Zegona's strategic direction, particularly following its acquisition of Vodafone Spain.

Deutsche Bank analyst Keval Khiroya raised the firm's price target on Zegona to 1,550p from a previous 1,030p, reiterating a ‘Buy' rating on the shares. This bullish outlook reflects a ~50% rise in Zegona's share price over the past two months and is underpinned by an upgraded operating free cash flow estimate of 25%.

Khiroya also highlighted potential benefits from simplifying Zegona's capital structure and ongoing operational improvements as key drivers for the increased target. The analyst noted that despite an anticipated slowdown in free cash flow growth, Zegona remains undervalued compared to its peers, trading at a projected 2027 unlevered free cash flow yield of 11.6% versus the sector average of 6.5%.

Over the past week, the stock has risen by 10.91%, and over the last month, it is up a remarkable 46.99%. The one-year performance showcases a staggering 211.05% increase, demonstrating the significant turnaround and market enthusiasm surrounding the company.

Zegona's recent performance is closely linked to its acquisition of Vodafone Spain for €5 billion in May 2024. The deal, comprised of €4.1 billion in cash and €0.9 billion in redeemable preference shares, marked a pivotal strategic move aimed at revitalizing Vodafone Spain under the leadership of CEO José Miguel García.

While the company reported a loss of €439 million for the fiscal year ending March 31, 2025, largely due to asset depreciation and debt-related costs, Vodafone Spain has shown signs of improvement. EBITDAaL improved to €1.249 billion, achieving a 34% margin, alongside an increased customer base and enhanced operational efficiency through strategic alliances and optimization initiatives.

Adding to the positive sentiment, Canaccord Genuity also recently increased its target price for Zegona Communications, moving from 835p to 980p, while maintaining a ‘Buy' rating. Their analysis highlighted Zegona’s strong operational turnaround and the potential to extract over €2 billion from dividend recaps and equity stake sales in its two Netco joint ventures. This strategy could potentially unlock a special dividend of approximately £1.60 per share, representing about 20% of the market capitalization, and lead to a significant reduction in share count.

Market speculation regarding potential acquisition interest from Telefónica in Vodafone Spain has also fueled the stock's surge. While Telefónica's president has publicly downplayed active plans for such a purchase, the possibility remains open, contributing to the heightened market interest.