UBS analysts have reassessed their view on German operator 1&1 AG, moving the stock from a "buy" to a "neutral" rating and lowering the one-year price target to €27.6 from €27.9. The change follows a period in which the shares climbed sharply - up about 120% over the last 12 months - and were trading near the bank's valuation at around €26.75.
Market data showed the shares down about 4% at 07:06 ET (12:06 GMT) on the session referenced by UBS. The bank said the current market price left limited upside relative to its revised assumptions, prompting the downgrade.
Central to UBS's reassessment is the bank's view that the stock already incorporates the likelihood that 1&1 will scale back its mobile network construction while realizing a commensurate lift in free cash flow. "We think the shares are already pricing in the scaling back of a mobile network build and corresponding ramp in FCF," the analysts wrote.
1&1's network rollout has faced persistent constraints since 2019. The company has activated roughly 1,500 cell sites, a figure that contrasts sharply with competitor builds of between 27,000 and 33,000 sites. Earlier obligations tied to spectrum auction conditions set a target of 50% population coverage by 2030, but a successful legal challenge removed those requirements.
UBS now models a more limited rollout, expecting 1&1 to cap its deployment at about 25% population coverage. Under that scenario, the bank anticipates free cash flow improving to in excess of €350 million, a notable shift from recent operating losses that averaged roughly €30 million across 2024 and 2025.
The bank highlights structural limitations that complicate any partial network strategy. 1&1 lacks low-band spectrum below 1 GHz, spectrum that is important for indoor coverage where the operator notes roughly 80% of usage typically occurs. Without that spectrum, the company is likely to shoulder parallel operating costs for existing arrangements while remaining dependent on an 18-year national roaming pact with Vodafone. UBS says that dynamic undermines the economics of an incomplete standalone network build.
On revenue and customer trends, UBS projects fourth-quarter 2025 service revenue to decline by 0.3%, driven by price competition in the mobile market and softer-than-expected customer additions. The brokerage expects 20,000 postpaid net adds in the quarter, a slowdown relative to prior periods, and attributes part of the shift to a strategy that emphasized value over sheer subscriber growth during the Black Friday promotional window.
Broadband churn and losses are also expected to moderate slightly, with UBS forecasting quarterly broadband losses of about 25,000 compared with the 30,000 reported in the third quarter. However, the bank notes that rural alternative network operators continue to capture share in those areas.
Looking further ahead, UBS anticipates certain one-off costs linked to network migration to Telefónica Deutschland will drop out in 2026. Specifically, the bank expects roughly €100 million of migration-related charges to disappear, which should help lift adjusted EBITDA to about €625 million in 2026 from an estimated €537 million in 2025.
Capital spending is projected to peak at about €400 million in 2025, reflecting catch-up on delayed investments, before easing as those prior-year delays are addressed.
UBS continues to flag consolidation in the German mobile market as a possible upside scenario. In a merger case, the brokerage's upside valuation reaches €41.7 per share. At the same time, it cautions that broader European merger and acquisition activity may not accelerate until late 2026, citing unresolved regulatory guidance and the absence of an appointed Director General for Competition as limiting factors.
In related corporate developments, 1&1 completed the acquisition of Versatel from parent United Internet in November 2025 for €2.25 billion, a deal UBS notes implies a roughly 13-14x EV/EBITDA multiple. The Versatel unit is expected to add in excess of €600 million of revenue and generate more than €180 million of EBITDA.
On UBS's metrics, the group trades at about 8x EV/EBITDA on a 2026 basis and offers an equity free cash flow yield for 2027 of roughly 7.4%. UBS contrasts that with a 7.9% yield for the broader telecommunications peer group, indicating 1&1's positioning is broadly in line with sector averages.
The brokerage disclosed that it holds a stake exceeding 0.5% of 1&1's listed shares.
Separately, an AI-driven stock-screener service referenced in the market note evaluates 1U1 among other companies using multiple financial metrics and highlights historical winners it has identified. The service indicates it can signal whether 1U1 is currently featured in any strategies or if alternative opportunities in the sector may be preferable.
Bottom line - UBS's downgrade to neutral reflects the bank's view that the recent rally has already captured the material upside from a reduced network build and improved cash flow. While a scaled-back rollout could materially improve free cash flow, UBS identifies near-term revenue pressure, customer-add challenges, and continued competitive dynamics in both mobile and broadband as headwinds that temper upside at current prices.