Vodacom trading update

Vodacom came out with an impressive looking trading statement for the quarter ending 31 December. Group revenue was up 5.6% with a South African revenue increase of 4.7%. What was very interesting to see and one of the reasons we remain heavily invested in the sector was a 36.2% increase in data revenue. Data now constitutes 11% of South African revenue and is obviously growing fast. CEO Pieter Uys was very happy with this fantastic growth calling data the "star performer" and citing growth in mobile connect cards and increases in smartphone clients as the main drivers for the growth. Vodacom now have 8.7 million data users which constitute 36.2% of active customers so there is still room for further growth.

Another impressive statistic was the 2.2 million added clients for the quarter. 1.4 million of these were South African. There were 537 543 matric candidates in SA this year so you can see where the growth in subscribers would be coming from. To think that these youngsters were only getting phones in matric would be naive but I'm sure if you looked at the number of youngsters entering high school, it would be closer to the 1.4 million and probably the majority of the new clients.

Who called this industry ex-growth? Even in a saturated market like South Africa where there is as many cellphone contracts as there are people, considerable growth is taking place. Like I said we like the sector but in a world of choices we prefer MTN because of their international reach. South Africa already has a very sophisticated telecommunications industry so most of the growth will come from the rest of Africa.

Vodacom's international operations include Tanzania, DRC, Mozambique and Lesotho but these only contribute 14% to group revenue. They experienced a combined revenue growth of 12.6% which is also very impressive.

The share price has done well trading at 7443c after listing in May at 5950c up 26%. On the day Vodacom listed MTN was trading at 11500c and is now at 13100c, an increase of only 10%. Hence we think MTN is cheap and a definite buy at these levels