Investors grapple with Vodacom value

Shares in Vodacom climbed for a third straight day on Thursday (14 November), after the mobile operator posted solid results for the six months ended September 2013.

Vodacom closed at a price of R121.19 on the JSE, having added more than R6 since Monday. The group started the year well, reaching a record target of R129.88 in early January, before slipping down to its worst trade of R100.66 in June.

Nadim Mohamed, investment analyst and partner at First Avenue Investment Management, said that Vodacom had managed the competitive environment very well with its pricing strategy – “better than MTN SA in my opinion”.

He noted that the group’s share price remained flat following the release of its results, most likely as a result of the continued uncertainty with regards to Icasa’s MTR legislation.

“Investors are grappling with the revenue impact of future reductions in tariffs will be offset by growth in data, handset sales and VAS,” the analyst said.

For Vodacom, data grew 20.6% in South Africa to contribute 21.5% of South African service revenue from 17.8% previously.

Vodacom CEO, Shameel Joosub told analysts that 15 million or 50% of the group’s customers in South Africa were using data.

Joosub further pointed out that number of active smartphones on the group’s network grew to 6.6 million, with “the most positive outcomes is at smartphone data usage is up 79% to 220 megs per customer”.

Business consulting firm, Frost & Sullivan stressed that both Vodacom and MTN, the country’s two largest mobile operators, have faced challenges over the last few periods, which they have not had to endure over the last five or six years.

“The local mobile market is rapidly approaching saturation; with Cell C and Telkom Mobile offering greater competition and the regulator playing a bigger role in driving prices down.

“This pressure is being reflected in performance, as Vodacom posted very moderate growth from local operations. The operator, however, continues to benefit from its geographic diversification as operations in other parts of Africa remain a major source of growth,” F&S said.

The consulting firm said that interconnect revenue for the current period fell by 23.6%. And with the introduction of the asymmetric mobile termination rate (MTR) looming, interconnect revenue is expected to drop further in subsequent periods.

“Interconnect revenue was on the decline anyway, as the operator had reported a 18 percent drop in its interim from 2011 to 2012; Vodacom and MTN were already looking to content and data, in order to counter the impact on service revenue,” said Frost & Sullivan Information & Communication Technologies Research Analyst, Lehlohonolo Mokenela.

“What will be interesting to see is the impact on subscriber shares as Cell C and Telkom Mobile become relatively more competitive on off-net tariffs.”

Frost & Sullivan said that should a deal between Vodacom and Neotel proceed, it is touted that Vodacom’s enterprise business will be boosted by close to 50%, and also give the operator access to Neotel’s 15,000 kilometres of fibre-optic network.

The operator announced a dividend of 395 cents per share, 11.2% up from 2012.

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Investors grapple with Vodacom value