Vodacom trading update


Yesterday we received a very informative trading statement for the quarter ended 30 June from Vodacom. Group revenues are up 3% for the quarter while customers increased by 5.3% to 51.5 million. Although still small, their international operations grew revenue by 14.1% while South African revenues increased 3.9%. There was a once off sale of Gateway carrier services which had a negative impact on operating revenues.

Group CEO Shameel Joosub had some interesting things to say: "Vodacom continues to perform well. We've seen a substantial increase in traffic as a direct result of executing on our commercial strategy and launching new products across all of our operations. As an example, by focusing on value offerings that allow people to talk for longer, we've grown prepaid minutes of use by 21.0% in South Africa. Overall, the active customer base has increased 5.3% to 51.5 million and Group revenue from on-going operations, adjusted for foreign exchange, increased 5.1%.

Data and the International operations remain key parts of the growth story. Data revenue in South Africa increased 21.8% and now accounts for 21.3% of service revenue, up from 17.5% a year ago. Continued network investment supported the increase in data traffic in South Africa, with 1.3 million additional smartphones active and using on average 75% more data per device than a year ago.

Equipment sales, primarily smartphones and tablets, totalled R2.7 billion in the quarter. The International operations added just under 3.3 million customers over the last twelve months, with service revenue increasing 14.1%. M-Pesa again performed well in Tanzania and has now been launched in Mozambique, DRC and Lesotho."

There are some key points to take form that. Data is still growing fast and it is no coincidence that this is on the back of huge smartphone sales. We still expect this to grow especially in their developing markets. This is coming off such a ridiculously low base, even in the US they only have a 60% smartphone penetration.

The problem with Vodacom is that the international side of the business is still very small. It only contributes 17.5% to revenues but as you can see from what Mr Joosub had to say, the customers are growing fast. 17.3% to 22.3 million to be exact. Capital expenditure in these regions are also increasing as they look to better their services and gain more clients.

We still see Vodacom as a nice alternative to MTN. Although it does not have the same growth potential as MTN because of their geographic limitations it also does not have the risks associated with the regions MTN are involved in. It also pays out most of its earnings as a dividend so that the Parent Vodafone can get some cash flow. Having said all of this I would still prefer to ride with MTN and take those risks.