Vodacom results crystal clear

Vodacom released their interim results this morning for the period to end September 30. Ex growth, remember that? We always maintained that the mobile markets next big move would be to data, so I am happy to say that thus far we are right. In the results commentary there is a lot of emphasis placed on exactly that, growing data off what is still a relatively low base. And as they point out, competition was fierce, costs were above inflation, but they still managed to increase margins. Unlike in the developed world, we are going to experience another ARPU growth cycle, that is driven by higher wages for all of their users. Well, that is the way that I read it anyhow.


Group revenue for the half increased 8.4 percent over the corresponding half last year to 34.4 billion Rands, net profits grew 39.4 percent to 6.117 billion Rands. For the half! EBIDTA margins grew to 35 percent. Net debt also increased by 8.6 percent to 11.572 billion Rands. But that is still small by comparison to their global peers. Basic earnings per share increased 36.2 percent to 410 cents, headline earnings per share increased 22.2 percent to 396 cents. But here is the news that most folks are impressed with, the interim dividend hiked 36.5 percent to 355 cents per share. I guess we should not be too surprised, at the full year stage Vodacom indicated that they were going to be paying as much as 90 percent of earnings back to their shareholders. So, the stock trades at nearly 111 ZAR (Randela's?), which means that they are 13 and a half multiple forward, with a fantastic yield of just less than seven percent at the current price. Expectations are for around 770 cents to be paid the whole year. I guess they will need an equally good second half to get to that number, but it should not be out of reach.


The company is still a South African one, with their international operations being in Mozambique, Tanzania, Lesotho and the DRC, where relations with the other shareholder have been, how should we say, not good. But, across those territories there was some pretty impressive growth, a 19.2 percent increase in their subscriber base to 19.3 million in total. But even more impressive was the 40 percent plus increase in traffic. But wait, that is not all (to borrow a line from someone else), if you add in a 140 percent increase in data revenue, driven by 128 percent growth rates in data subscribers, you get the picture as to where we are going here. There are 4.3 million data users in their international operations. Money transfer platforms continue to grow, for whatever reason in East Africa that region seems to be the early adopters. 4.2 million M-Pesa users (translated from Swahili means mobile (the M part) and money, that is pesa), with nearly half of their Tanzanian subscribers users of the banking service. According to Wiki, M-Pesa is the most advanced mobile payment system in the developing world.

South Africa is still however the rump of the business, representing 80 percent of group service revenue, but an even higher 89 percent of group EBIDTA, clearly demonstrating that South African consumers are more flush than their fellow continent dwellers. EBIDTA margins are 12 percentage points higher here than in the rest of the African businesses. Data is really growing strongly here, and now represents 17.7 percent of service revenue. Traffic grew by 42.5 percent, even whilst the price got a whole lot cheaper, as much as 24.2 percent cheaper per megabyte. The total number of active data consumers increased to 13.3 million in total, thanks to 1.4 million more capable smartphones active on the network. That brings the total to 5.3 million folks Tweeting, Facebooking, taking photos, browsing the web, and all the other wonderful things that you can do with your handset. Along with 258 thousand active tablets on the Vodacom network, that seems quite impressive. And make no mistake, every person I know wants a better handset that can do more things than the last one they had or currently have. Technology changes really quickly. Oh, and there are 30.8 million subscribers here in South Africa.


So where to next for the company? Well, in the short term they have invested heavily in the next big step, data. 3G base stations have jumped, but more excitingly 4G is also being rolled out aggressively. This is where I think that both the two dominant mobile networks (MTN the other) of bandwidth are going to eat the others lunch. 500 LTE towers will have been activated by year end. You know, I can't wait for faster download speeds. We have been hamstrung here by a lack of clarity from government on Telkom. The bandwidth speeds are not what they should be. As such the successes of both Vodacom and MTN can be put down to the fixed line operator stumbling around. Of course the divergence can be seen in their share prices too. I suspect that in the coming years there will be more peoples accessing more data on the mobile networks as we skip the whole fixed line build up in South Africa. More people will have smart phones. The only thing that negatively impacts on the mobile companies will be that people will demand lower prices. Unfortunately for us, whilst the fixed line operator continues to be comfortably below par, prices will maintain elevated levels by global standards. We continue to accumulate Vodacom for those high dividend yield portfolios.