Vodacom: Yea or nay?

Vodacom’s share price has endured a rollercoaster ride over the last few months – first showing strong growth to an all time high of R110.41 in early April, and then plummeting to around R90 per share. The Vodacom price recovered slightly after a positive trading statement on Thursday 19 July, and is currently trading at around R94 per share.

This decline in share price over the last few weeks raises the question whether Vodacom is a good investment at current levels. Analysts are divided on the issue.

Stay away: Hlelo Giyose

Hlelo Giyose, chief investment officer and principal at First Avenue Investment Management, said that he will not touch any telecommunications share.

“The level of competition is intensifying in South Africa, and the results [from Vodacom] show that,” said Giyose. “Cell C has upped the ante phenomenally.”

Giyose argued that the saving grace for Vodacom is what they are doing outside of South Africa, and the strong growth in mobile data. However, this is not enough to overcome lower margins going forward.

“The market does not believe these mobile companies will be as successful in the future as they have been in the past. The landscape has changed,” said Giyose.

Giyose added that while MTN’s greater diversification into other markets limits the impact of a local price war, he would not invest in any telecoms companies.

“These companies have done a really great job of psychologically manipulating our consumers here at offering mahala (a free package) when there is actually a cost here,” argued Giyose.

“They have done a great job of psychologically convincing the regulator that the prices here are cheaper than anywhere else in the world, yet South Africa has the third highest cost for mobile calls globally.”

Giyose said that if an investor buys shares in Vodacom and MTN, they are betting that society stays dumb for a long time and that people do not see that these mobile companies are lying. “That is not a bet I want to make,” said Giyose.

Vodacom is a buy: David Shapiro and Wayne McCurrie

Wayne McCurrie of Momentum Asset Management disagrees with Giyose, arguing that Vodacom is a great stock to invest in at its current levels.

McCurrie said that that he can see no logical reason for Vodacom’s share price decline over the last few months. “It was not expensive to start off with, it is a very stable business and Cell C and 8ta have proven that they are not really competition at all,” said McCurrie.

“Vodacom has huge cash piles and the company has big dividend payouts. This is one of those shares where you do not have to worry what the price does – the dividends are high enough to compensate you for owning the share,” said McCurrie.

David Shapiro, deputy chairman at Sasfin Securities, agrees with McCurrie. “I like to buy dividend payers. If they can even maintain their profits at current levels you are on a 7 dividend yield – it is much better than putting money in the bank,” said Shapiro.

“Unless they mess it up completely and profits starts falling I think it [Vodacom’s current share price] has got to be a very attractive entry point,” said Shapiro.

However, Shapiro did sound a warning: “I am not sure if there is any particular reason why it is being sold down like that – if there is anything the market knows, or that people outside know, that we do not know. That is my only caution.”

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Vodacom: Yea or nay?