Our opinion on the current state of VODACOM(VOD)

Vodacom, as South Africa's largest provider of airtime and data for cell phones, plays a crucial role in the telecom sector. It operates as a subsidiary of the international conglomerate Vodafone, facing competition from MTN, Cell-C, and Telkom. The industry has seen a significant shift with a decline in voice revenue, although this has been somewhat offset by a dramatic increase in data usage.

One of the challenges Vodacom faces is its ownership structure, with a foreign parent company, which has shown to impact its market valuation negatively. For instance, concerns about Vodafone potentially being pressured to divest its non-European subsidiaries led to a 7% drop in Vodacom's share price over two days. Vodacom's operations span several countries including Mozambique, Tanzania, the DRC, and Lesotho, and it is also exploring opportunities in Ethiopia, which is Africa's fastest-growing economy with a population of over 105 million.

Regulatory challenges have also affected Vodacom. On 2nd December 2019, the Competition Commission mandated a reduction in interconnect fees by 30% to 50%, significantly impacting Vodacom's revenue, as a substantial portion comes from these fees, causing a 5% drop in its share price.

Innovations such as the launch of a "super-app" in collaboration with Jack Ma's Alipay aim to boost Vodacom's non-voice revenue. Additionally, a strategic partnership announced on 10th November 2021 with Remgro to create "Infraco" sees Vodacom holding an initial 30% stake, potentially increasing to 40%. This venture, integrating Remgro’s Dark Fiber Africa (DFA) and Vumatel, represents Vodacom's ambitious plan to dominate the fibre market in South Africa. The company has also invested R4 billion to mitigate the effects of load shedding, highlighting its proactive approach to dealing with operational challenges.

For the fiscal year ending 31st March 2024, Vodacom reported a significant 26.4% increase in revenue, although headline earnings per share (HEPS) decreased by 10.8%. The acquisition of operations in Egypt significantly contributed to a 29.1% rise in group service revenue, supported by strong performance in South Africa. Despite global economic pressures, a 6.4% increase in net profit reflects the effectiveness of Vodacom's strategic and operational adaptability.

From a technical standpoint, the share price has been on a downward trend since reaching a high of 16214c on 1st April 2022. Given the current trend, it may be prudent for investors to wait for a clear upward break through the downward trendline before considering an investment. Despite its attractive dividend yield of around 5.13%, Vodacom operates in a dynamic and often unpredictable environment characterized by rapid technological changes and regulatory shifts, presenting a considerable risk.