Vodacom full year results

Yesterday Vodacom released their Annual results for the year ended 31 March 2015. The number that first catches your eye is the impact of the 50% decrease in the mobile termination rate (MTR). The MTR impact was R 2 billion in revenues and R 1.2 billion in EBITDA, it is not great to see these numbers but the impact has now been felt. Interconnect rates now account for less than 5% of revenues and even though MTR will continue to drop over the coming years, the drop will be nowhere as big as last years one.

Revenue grew 2.1% to R77.3 billion, EBITDA dropped 1.5% to R26.9 billion and the number that matters the most HEPS, dropped 4% to 860c. Their customer base is up 7.2% to 61.6 million, active data customers are up 15.9% which has translated into data revenues up 25%. In South Africa data traffic for the 4Q was up 48% compared to the same quarter last year, with the result that data now accounts for 29% of revenue.

Data is no doubt where the growth is going forward and will eat into the revenues and profits from voice. There is still huge room for growth though, the average amount of data used by smartphones in South Africa (which they have 9.3 million on their network) is only 342Mb. As speeds and coverage increases; as webpages become more data intensive; as the number of smartphones increase; as the middle class grows; so the average data consumption will continue to grow exponentially. To cope with the increased data consumption Vodacom spent R13.3 billion (17.2% of Revenue) on Capex last year, R8.6 billion which was in South Africa.

A frustrating point in the results is that the Neotel deal has been waiting approval for nearly a year. If it is approved, Vodacom is hoping to target the business community and they will get access to the Neotel spectrum which will make them the leaders in the South African data network.

A Vodacom discussion is never complete until you visit their dividend. Given their dividend policy to pay at least 90% of headline earnings, they are a solid dividend payer. They are paying a final dividend of 400c (down 7%) and a total dividend of 775c (down 6%). After dividend tax you will get 658c which at current prices puts the after tax yield at 4.7%. Given that Vodacom is expecting single figure growth going forward, you wont see a huge increase in the share price. If you are after a solid dividend flow in an established company, Vodacom is a good option.