20 May, 2013 16:38

Vodacom Results for the Year to March.

The Vodacom results seemed impressive to me. At a time when there is such fierce competition in the mobile communications industry, CEO Shameel Joosub delivered an assured run-down of the business. It was interesting that neither he nor his CFO dressed up in suits. Indeed the CFO looked like a lecturer at a minor university who hadn’t been near a barber for many a month, but he was comfortingly sharp and informed when answering questions. The numbers were not bad, with revenue up 4.5 percent, heps up 23 percent and the dividend up 10.6%. We were told of an increasingly challenging environment, with the consumer under pressure, particularly at the lower end. There is still a big growth in data, especially on smartphones. And data in SA and elsewhere seems likely to be the main growth driver. The management team seem to believe there are good opportunities from international expansion, and are actively looking to enter new markets.

Expert views

1. Malcolm Mac Donald of Tersos

Margins on data are continuing to expand, while prices fall, and volume grows. This is astonishing. With data currently 30% of revenue, and 75 % of the network LTE ready, apparently the bottleneck to growth is access to spectrum. Vodafone procurement gives Vodacom the benefit of scale and they continue to reduce costs on network provision. There are most likely customers still trapped by their 24 month contracts who would have pursued cheaper contracts with other providers, but new pricing initiatives will most likely attract enough new customers to offset this. So, all in all, a compelling and excellent set of results from Vodacom.

2)Mohammed Nalla of Nedbank:

The market seems to be disappointed with Vodacom’s results, with the stock down 3.75% by mid-afternoon, vs. MTN’s -2%. As expected, domestic growth appears lacklustre while international growth continues to be the primary focal point. From a revenue mix perspective, the focus remains on growing data revenues as voice continues to remain pressured. Nothing surprising here. The potential for growth using bolt-on acquisitions on the continent is one that investors will look at with care, cognisant that Vodacom should not overpay for assets. On the positive side, the increase in the dividend is promising and will certainly please investors who hold Vodacom as a dividend play. This is arguably one of the most promising rationales for holding telecom stocks, as the industry moves into a more mature phase requiring less capital expenditure and looks at cash-generative returns to shareholders.

Conclusion

Vodacom has a large customer base, a supportive and knowledgeable major shareholder and is looking good. Telkom should never have sold its stake.

Tweet of the Day

@MarkTwainTwtr: There is no sadder sight than a young pessimist.


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