Vodacom results, whopping increase in dividend

As promised yesterday we will look at the Vodacom results from yesterday, we ran short of time again. Time. Not enough of it, or perhaps I should just compromise sleep in favour of more mileage on the computer. I would probably be an almighty pain in the posterior with a lack of sleep. Making Russian bears with sore heads look more friendly than what they are. Leave that for the moment, let us focus on these numbers from the number one mobile phone company in South Africa. The shareholding in the company has undergone pretty big changes over time, at the moment the shareholder base consists of the Vodafone Group (65%), the South African government (just less than 14 percent) and the Government Employees pension fund (just less than 5.5 percent). So, comfortably over 80 percent of the company is in hands that I guess are not really sellers anytime soon.

The numbers. Quick recap, earnings of 709 cents per share, dividend of 710 cents per share. As we said yesterday, Vodafone is going to suck out as much of the cash as they can. The company increased turnover to 66.9 billion Rand, whilst headline earnings topped 10 billion Rand, 10.374 billion to be precise. Total customers increased 11 million over the year to 47.8 million. Data revenue grew 23.6 percent whilst data customers grew nearly 50 percent to 15.1 million folks. Most of those customers are in South Africa, with active data consumers here running at 12.2 million. A massive part of that has been driven by smartphones, which now top 5.1 million on the Vodacom network. Valuations, the simple metrics, the stock trades at 104.50 ZAR, roughly. So, the stock trades on an earnings multiple of 14.7 times, with a dividend yield of 6.8 percent. That is why people will pay up for the stock, the yield is amazing. But as we said, Vodafone are going to try and suck as much cash out as they can. In the presentation the company says that they will continue to payout at least 90 percent of headline earnings per share.

Data is the future, whilst it is small for now, you can see the explosion in smartphones and the strong growth that we have seen in data revenue. Although the breakneck pace will slow, I can imagine that more consumers want smartphones and to be connected and "online". Average smartphone usage has increased from 38MB to 98MB. And that is why Vodacom have invested heavily in their network, adding over 1000 sites and spending a whopping 8.66 billion Rands. That is a lot. And we continue to think that there is going to be strong growth in the data space.

But the Vodafone geographical shackles are a bit of a problem. Will Vodacom become more utility like? I suspect that the ex-growth label is not warranted, data margins, which are not as good as voice margins, are going to still grow a lot. I am not too sure what the eventual mix will be, but I suspect it is a long way before we get a fifty-fifty mix. In the US would you believe, according to this piece Verizon, AT&T dominate in global data revenues, US overall data as a percentage of ARPU is 40 percent. BUT, constitutes 85 percent of all traffic. Get that point about data margins? Still, in a world of choices, we see the rest of Africa offering greater opportunities than South Africa. And whilst that is the case, we will continue to buy MTN. BUT, if you are looking to do the same as Vodafone, look for a great yield, then Vodacom still looks cheap enough. And you are paying up for the yield.