Investors were not impressed with Vodacom's results this morning, despite its declaration of a 32.3% increase in its interim dividend to 330c per share, which came off headline earnings per share (HEPS) growth at the same pace.
Even though its share price was up almost 2% two hours after its numbers were released, trading at R13.75, Peter Takaendesa, chief investment officer at Mergence Investment Managers, points out that the gain trailed both Telkom (up 6%) and MTN (up 1.5%) in the same time frame.
By 9.30am, its stock was only 0.5% up, with Takaendesa saying Vodacom's investors were not giving the results a warm reception. The price continued to lose ground during morning trading, although it is up 6.25% in the past five years.
Takaendesa feels Vodacom's interim earnings and dividend came out a bit softer than market expectations, even after normalising for the ‘Please Call Me’ settlement. In addition, website Simply Wall Street lists the share at 18.4% overvalued.
Last Wednesday, Vodacom said it had settled the years-long legal dispute over the ‘Please Call Me’ invention with former employee, Nkosana Makate, out of court. Makate had proposed the innovation in 2000, with Vodacom launching it a year later without compensating him.
The agreement is confidential, and no numbers have been disclosed. Last February, the Supreme Court of Appeal ordered Vodacom to pay Makate between 5% and 7.5% of the total voice revenue generated by the ‘Please Call Me’ service.
Revenue growth
Vodacom, SA’s largest mobile operator, reported interim revenue gains off the back of growth in services and financial services revenue – while growing its subscriber base to more than 200 million.
Overall, revenue climbed 12.1% on a normalised basis, which strips out currency fluctuations, to R81.6 billion. Service revenue, which gained 13.6%, boosted its top line, it says in its results booklet.
Financial services revenue, which contributes just more than a tenth of overall services income, grew 21.5% to R8 billion. In this category, Vodacom includes offerings such as digital payment solutions, which have been taken up by almost 94 million customers.
CEO Shameel Joosub says “we delivered robust growth” as revenue is “tracking above our medium-term target of double-digit growth”. He adds that, “factoring in our diversified portfolio and disciplined execution, these results showcase the underlying health of the business, which supported an improved return on capital and a healthy balance sheet”.
HEPS – a key measure of profitability – came in at 467c a share, a 32.3% gain. Joosub says the declared dividend “is consistent with the group's dividend policy of paying at least 75% of headline earnings”.
SA operations slow
In SA, service revenue grew 2.2% to R31.7 billion, driven by the contract segment, beyond mobile services and the company's R54.1 billion investment in its network over the past five years.
Yet, Takaendesa says the SA operations “materially slowed in the quarter ended 30 September due to pressure in the prepaid segment,” although its international segment helped the group, driven by 55%-owned Vodacom Egypt.
Its international business – comprising DRC, Lesotho, Mozambique and Tanzania – reported service revenue growth of 13.3% on a normalised basis to R16.7 billion, with customer numbers increasing by 13.6% to 63.7 million.
“South African operations are likely to weaken further over at least the coming few quarters,” says Takaendesa. He adds that Vodacom reiterated its mid-term guidance thanks to ongoing growth in its rest of Africa operations.
Vision 2030 on track
Joosub is upbeat, saying the company is tracking in line with its Vision 2030 target, with ‘beyond mobile’ – including financial and digital services, fixed and internet of things – now contributing just more than a fifth of revenue.
This growth in ‘beyond mobile’ brings the company closer to its target of achieving 30% of income from these services by 2030 as part of its Vision 2030 plan, Joosub says.
Integral to Vodacom's Vision 2030 strategy is capital investment, with the company having plugged R9.4 billion into its technology and networks over the past six months, says Joosub. “Including Safaricom, we have added 1 881 4G and 3 524 5G sites year-to-date,” he notes.
Vodacom plans to spend R23 billion across its markets in the current financial year, says Joosub, signalling that capex in the second half will accelerate to R13.6 billion.
Overall, Vodacom now has a combined 223.2 million subscribers, an increase of 8.6% year-on-year. It hit 200 million customers at the end of December last year and, under Vision 2030, aims to reach 260 million customers.
“Vision 2030 will see us accelerate our impact – empowering people, protecting the planet and maintaining trust – while delivering sustainable value for shareholders, customers and the societies we serve,” says Joosub in the results booklet.
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