Vodacom trading update surprises to the upside

Vodacom released a trading update yesterday. There will be for a little while the impact of STC (secondary tax on companies) having been replaced by dividend taxation and as such earnings will look inflated. This is the case here, and Vodacom point out that STC paid for the six months to end September 2011 was 417 million ZAR. So, naturally that will not be an expense this time around. The company expects HEPS to be between 20 to 25 percent higher than the 324 cents reported this time last year.


So, do a quick back of the matchbox scribble for the middle of the range and you get to 397 cents HEPS for the half year. The "real" earnings growth number, which if you factor in the STC impact, is worth having a look at, let us work it out. Last year headline earnings from continuing operations came in at 4.733 billion Rands. A 22.5 percent increase (the middle of the range) gets you to roughly 5.8 billion Rands. But if you add back the STC charge to last year's number, you would get a more comparable number. In the middle of the range the increase in headline earnings would amount to roughly 11.5 percent.


Which is not bad for a company that everyone (not us) called ex-growth (wink). I suspect that when the results themselves are released on the 12th of November that the data revenue growth would have driven this jump in earnings. Now this is what attracts people to the company, their very high payout ratio, which stands at around 90 percent. So, when again I use my trusty spreadsheet, I get an effective dividend yield (after adjusting for a full year earnings increase of around the same amount, and dividend tax) of around 6.2 percent at current levels. Which sounds nothing short of very awesome. No wonder the share price increased five percent yesterday.