Our opinion on the current state of VOD

Vodacom (VOD) is South Africa's largest airtime and data provider for cell phones. It is a subsidiary of the international company Vodaphone. Its competitors are MTN, Cell-C and Telkom. The cell phone industry has been hammered by a steady decline in voice revenue which has to some extent been compensated by a sharp rise in data usage. The disadvantage which Vodacom has as an investment is that a foreign parent owns it. This was graphically demonstrated when its share price fell 7% in two days because it was feared that its parent company would be pressured to sell off its non-European subsidiaries. Vodacom has businesses in Mozambique, Tanzania, the DRC and Lesotho. Now the group is looking to develop a business in Africa's fastest-growing economy, Ethiopia, with a population of 105m. On 2nd December 2019, the Competition Commission ruled that Vodacom and MTN had to cut their interconnect fees by between 30% and 50%. Much of Vodacom's revenue comes from interconnect fees and it saw its share price drop by 5%. The company is launching a "super-app" in conjunction with JackMa's Alipay to boost its non-voice revenue. On 10th November 2021 the company announced that it was entering into a new venture called "Infraco" with Remgro in which it would own 30% potentially rising to 40%. This venture will incorporate Remgro's Dark Fiber Africa (DFA) and Vumatel and Vodacom will inject R9bn in cash. The idea is to dominate the fibre business in South Africa. In its results for the six months to 30th September 2023 the company reported revenue up 35,5%, as a result of the acquisition of Vodaphone Egypt, and headline earnings per share (HEPS) down 4,2%. The company said, "Financial services customers, including Safaricom on a 100% basis, 73.5 million, transacting US$1 billion per day. Financial services revenue increased 39.9% to R6.2 billion contributing 10.5% to Group service revenue". It has also spent R4bn to mitigate the impact of loadshedding. We believe that this share will perform well, but may take some time to reach former heights. On 17th February 2023 the Business Day reported on rumours that Vodaphone might be selling Vodacom causing the share price to rise sharply. Technically, the share has been falling since its high of 16214c on 1st April 2022 and we suggest waiting for a clear break up through its downward trendline which has not yet happened. It looks cheap at current levels with a dividend yield (DY) of around 5,19% - but it is in an environment where the technology and regulation shift continuously.