Financial Mail - Investors Monthly
BUY, HOLD, SELL
In all SA telecoms companies revenue from voice calls is declining while income from data is increasing, and this is also a worldwide phenomenon
VODACOM Share price: R124.19 JSE code: VOD BUY VODACOM IS PROBABLY THE pick BUY of VODACOM the bunch when IS PROBABLY it comes THE to telecoms companies listed in SA. It has operations all throughout Southern Africa, but its biggest market by a large margin is SA. During the 2018 financial year revenue grew by 6.3% to R86.4bn, with 7-million new customers joining the network. Of the company’s total revenue, 63% comes from SA. The remaining 36% is contributed by its international operations, split almost 50/50 between Kenya’s Safaricom (a 35% stake acquired in an equity swap deal with Vodafone UK in August 2017), and all the other operations outside SA combined.
Like all telecoms companies, Vodacom is experiencing a decrease in revenue from traditional voice calls and an increase from data and related bandwidth services. But unlike its competitors, Vodacom is making use of big data, machine learning and artificial intelligence to offer its clients service bundles that include talk time, data and SMS services. This has enabled Vodacom to make its customers personalised service offerings that led to the sale of 2.3-billion bundle offers, up 51.3% from the year before.
The company’s M-Pesa component last year helped 11.7-million customers (an increase of 30.4%) process transactions worth R1.3-trillion, resulting in revenue of more than R1.9bn for Vodacom. TELKOM Share price: R50.72 JSE code: TKG HOLD TELKOM HAS BEEN UNDER THE leadership HOLD TELKOM of Sipho HAS Maseko BEEN for UNDER just over THE five years now, and has pulled off a remarkable turnaround. Its acquisition of BCX has also given it access to the corporate information & communication technology (ICT) services market. It has opened its infrastructure to commercial customers via Open Serve and outsourced the maintenance and management of its infrastructure and property assets with a new wholly owned entity called Gyro.
It has positioned itself as a real competitor in the mobile and ICT space and has recorded significant increases in revenue and cost efficiencies. Over the past financial year operating revenue for the group was flat at R41bn, with headline EPS sliding 18.4%. The key for Telkom now would be to start unlocking the potential revenue of its new data products and growing its mobile market share.
Last year Telkom recorded an 8.9% drop in fixed voice revenue, which was more than compensated for by a 47.2% rise in mobile service revenue. This transition to modern mobile telecoms and highspeed data is the key to success for Telkom. If economic conditions continue to get more difficult in SA, Telkom might be faced with headwinds. Nonetheless, its successful turnaround thus far makes for a compelling investment case. MTN Share price: R70.95 JSE code: MTN SELL WHERE TO START? PERHAPS with SELL the WHERE Fitch ratings TO START? agency PERHAPS placing it on negative watch in the wake of claims against MTN of $10.1bn (R149.24bn) by Nigerian authorities? Or the latest round of US sanctions against Iran, keeping R3.4bn out of MTN’s reach? Or its operations in what are essentially war zones (Syria, Afghanistan, Sudan and Yemen), which have currencies that are hyperinflating?
Sensationalism aside, MTN has 217million customers in 21 countries across Africa and the Middle East. For MTN too, voice revenue is declining while data revenue is rising. A natural result of technological advancement, and nothing to be too worried about. But a concern is that only 18% of data customers are in SA, while 20% are in Nigeria and 27% in Iran, with the rest spread across the continent. Two of those three primary territories have serious issues and the third has just entered a technical recession.
MTN’s aggressive expansion into frontier African markets might have bagged it the most customers on the continent, but this has also exposed it to the most risk.
Many of the markets in which MTN operates are being hit by rampant inflation and currency devaluation.
This will undoubtedly continue to put pressure on the share price.