Vodacom half year results

This morning we see the first mobile provider in South Africa, Vodacom, release results for their first half. HEPS increased nearly seven percent to 323.5 cents per share, the dividend was a whopping 260 cents, which was a 44 percent plus increase. Yip, that is the way that we are moving, all free cash back to shareholders. What a surprise. Or not, that is the whole idea being alongside a giant shareholder, think Anglo and Kumba, think Barclays and ABSA, I was about to say think ArcelorMittal, the local business alongside the global business, scrap that idea. So, that is the good thing that you get being alongside a majority shareholder, comfort that you have a sizeable global operation looking out for you, and that all free cash will be extracted. Those are generally good things.

Net debt was lower at 10.6 billion ZAR, which is still sizeable, but they are eating into that quickly. Half of that matures in the next 12 months. But they have done a lot with restructuring their debt, more innovative it seems to me. They had quite a hefty tax bill to pay,

Amazing to think that this business (Vodacom) is only 18 years old, founded in 1993. They only listed through the unbundling and purchase by Vodafone of a majority stake (from Telkom) in 2009. The share price has done astonishingly well, really well, the 24 month low is just over 50 ZAR, the current price is just below 89 ZAR which is close to the 24 month high of 9287 ZA cents. The analyst community are expecting the company to earn over 7 ZAR worth of earnings for the current year, around ten percent better the year after and eight and one quarter of a Rand thereafter. But it is the awesome dividend yield that is too much to ignore, the expected payouts, including the one declared today is expected to be over 18 ZAR. Now tell me, in a world that is searching long and hard for yield (the Fed are currently at these levels on rates through for the next two years or so) this is a great one to own. Plus you have the implied credit rating of Vodafone. So there will be a lot of support for the company I am thinking, do not expect it to be exciting, but expect the buyers to remain. Oh, and for what it is worth, the analyst community consensus meets at the neutral line.

OK, so we have done it the other way around, exploring the reasons of why you would want to own the share, before we looked at business operations specifically. Total customers in South Africa increased to nearly 29 million folks, 28.9 million currently. A big jump in their data customers, as much as 38.1 percent, to 12.4 million folks. But still, data only represents 14.1 percent of total group revenue, so there is still lots of moving left to do. And it is not a secret that data revenue is not as lucrative as voice. But I have always maintained that spend on mobile telephony is almost non negotiable. The international customer base grew to 19 million, an increase of 22.5 percent from this time last year.

South Africa is still their most important geography, 84 percent of revenues and 93 percent of EBITDA. So, it is probably fair to say that this is a South African operation with growing African exposure. For me though it is all about the data growth, which you are seeing is picking up amongst the lower income groups. We will all use multiple devices more and more, our TV's will all be connected to the internet, through our mobile service providers. Now, why do I say that? Well, simple, mobility means mobile, and clients are more service sensitive. And just remind me who the competition is (and previous part owner)?

Tell all those folks moaning about the coverage that the aim has been to improve, they upgraded 352 sites to provide broader 3G coverage, over four and a half thousand 3G sites currently. AND, "68.4% of 3G sites have been activated with HSPA+ (21.6 mbps) software and of these around 30% have been migrated to high capacity IP transmission backhaul. Dual-carrier HSPA+ (43.2 mbps) is now active on 52.1% of our 3G sites." Nice, improved speeds at lower costs. Think about your own life, how much more you use your phone, new devices, like tablets, consoles, even TV's if you have one like that. 1 Gig of data was more than enough, sadly ten does not quite cut it if you have all these devices.

The outlook is decent enough. They do expect growth to slow in the second half citing "further pressure in both voice and data prices." Fair enough. Capex is expected to increase in the second half, but not above the guidance given at the beginning of the financial year. Improved connectivity, stability to the networks and coverage improvement is the groups focus. The group is also doing a lot to improve the customer experience, I am not going to go into that. On balance, a good company to own, but you know what I am going to say here, we continue to prefer MTN.