Our opinion on the current state of VOD

Vodacom (VOD) stands as South Africa's largest provider of airtime and data services for cell phones, operating as a subsidiary of the international telecommunications company Vodafone. Competing with MTN, Cell-C, and Telkom, Vodacom operates in an industry that has faced significant challenges, including a continuous decline in voice revenue, partially offset by a substantial increase in data usage. One notable disadvantage for potential investors in Vodacom is its foreign ownership, demonstrated when its share price dropped by 7% in just two days amid concerns that its parent company might be pressured to divest its non-European subsidiaries. Vodacom currently operates in countries such as Mozambique, Tanzania, the Democratic Republic of Congo (DRC), and Lesotho, with plans to expand its presence in Ethiopia, Africa's fastest-growing economy, boasting a population of 105 million.

In December 2019, the Competition Commission ruled that Vodacom, along with MTN, must reduce their interconnect fees by 30% to 50%. This decision significantly affected Vodacom's revenue, particularly as a substantial portion of its income comes from interconnect fees. To diversify its revenue streams, the company has partnered with Jack Ma's Alipay to launch a "super-app."

On November 10, 2021, Vodacom announced a new venture called "Infraco" in collaboration with Remgro, in which it would initially own 30%, with the potential to increase to 40%. Infraco incorporates Remgro's Dark Fiber Africa (DFA) and Vumatel, with Vodacom injecting R9 billion in cash. This strategic move aims to establish dominance in South Africa's fiber industry.

In its financial results for the six months ending on September 30, 2023, Vodacom reported a 35.5% increase in revenue, primarily driven by the acquisition of Vodafone Egypt. However, headline earnings per share (HEPS) declined by 4.2%. The company highlighted the growth in financial services customers, including Safaricom, with over 73.5 million users transacting US$1 billion per day. Financial services revenue also surged by 39.9% to R6.2 billion, contributing 10.5% to Group service revenue. Additionally, Vodacom invested R4 billion to mitigate the impact of load shedding.

Although Vodacom is expected to perform well, it may take some time to reach previous highs. Rumors of Vodafone potentially selling Vodacom in February 2023 caused a sharp rise in the share price. Technically, the share has been on a downward trajectory since reaching a high of 16,214 cents on April 1, 2022. Potential investors may want to wait for a clear break above its current downward trendline. Despite the challenges, Vodacom appears attractively priced with a dividend yield (DY) of approximately 5.42%, but it operates in an environment characterized by constant technological advancements and regulatory changes.