Our opinion on the current state of VODACOM(VOD)Vodacom (VOD) is South Africa's largest airtime and data provider for cell phones. It is a subsidiary of the international company Vodaphone. Its competitors are MTN, Cell-C, and Telkom.
The cell phone industry has been hammered by a steady decline in voice revenue, which has to some extent been compensated by a sharp rise in data usage. The disadvantage which Vodacom has as an investment is that a foreign parent owns it. This was graphically demonstrated when its share price fell 7% in two days because it was feared that its parent company would be pressured to sell off its non-European subsidiaries.
Vodacom has businesses in Mozambique, Tanzania, the DRC, and Lesotho. Now the group is looking to develop a business in Africa's fastest-growing economy, Ethiopia, with a population of 105m. On 2nd December 2019, the Competition Commission ruled that Vodacom and MTN had to cut their interconnect fees by between 30% and 50%. Much of Vodacom's revenue comes from interconnect fees, and it saw its share price drop by 5%.
The company is launching a "super-app" in conjunction with Jack Ma's Alipay to boost its non-voice revenue. It has also spent R4bn to mitigate the impact of loadshedding. We believe that this share will perform well, but may take some time to reach former heights.
In its results for the six months to 30th September 2024, the company reported revenue up 1% and headline earnings per share (HEPS) down 19,4%. Financial services revenue increased by 7,8% and contributed 11,4% to group service revenue. The company had 206m customers and rendered financial services to 83m. The company said, "While our bottom line was impacted by various one-offs, I am confident that we are poised for a stronger second-half performance."
In a trading update for the 3 months to 31st December 2024, the company reported revenue up only 1,6% due to the stronger rand, with service revenue up 11,6%. The company said, "...the quarter was positively impacted by accelerated growth in South Africa's prepaid market in addition to another stellar performance in Egypt and Tanzania, while network operators in Mozambique, including Vodacom, have been hampered by post-election tensions since October 2024."
In a presentation to investors on 19th February 2024, the company said that it expected to grow earnings by 10% per annum in the years between 2025 and 2030. The expectation is that its Egyptian subsidiary will grow profits by at least 20% per annum.
Technically, the share fell from its high of 16214c on 1st April 2022, and we suggested waiting for a clear break up through its downward trendline, which happened on 25th July 2024 at 9836c. Since then, it has risen to 11900c. It still looks relatively cheap at current levels, with a dividend yield (DY) of around 3,83%—but it is in an environment where technology and regulation shift continuously, making it risky.
