Vodacom shares drop 5.5% on slow growth outlook

·10 Nov 2014

Shares of South African mobile phone operator Vodacom fell nearly 6% on Monday after it posted a surprise decline in first-half earnings and warned earnings growth would be slow over the next three years.

By 14:30 on JSE, shares in Vodacom declined R7.34, or 5.5%, to R125.76.

South African telecom companies are battling to return the kind of double-digit margins posted over the last decade, as competing firms cut voice and data costs to gain market share.

Vodacom, South Africa’s operator with the most users, lowered its medium-term outlook for earnings before interest, tax, depreciation and amortisation to mid-single digits from previous expansion forecasts of mid- to high-single digits.

Rival Telkom SA has warned its earnings for the first six months would fall by up to 70%.

“It’s not a Vodacom-specific story,” said Farai Mapfinya, head of equities and portfolio manager at JM Busha Asset Managers.

“The industry as a whole is actually going into a low returns environment. You are not likely to see the high margins that we have seen in the past and not likely to see high double-digit growth in terms of earnings for the foreseeable future.”

The local unit of Vodafone Plc said its service revenue — which excludes income from non-core business such as mobile phone sales — took a 1 billion rand ($89 million) hit after the sector’s regulator halved termination rates, the amount operators charge one another to connect calls, this year.

Vodacom said diluted headline earnings per share, South Africa’s benchmark profit measure, fell 5% to 415 cents per share in the six months to end-September.

The operator that offers services across five African countries including Tanzania, the Democratic Republic of Congo and Mozambique said revenue from those countries grew 13 percent, contributing a quarter of the group’s service revenue.

Vodacom is the dominant operator in South Africa although dwarfed by rival MTN across the continent.