Still a power player Despite losing out on buying Neotel, Vodacom still dominates the South African telecoms market. Its share price is trading near record highs, but can it last?
telecommunications group Vodacom, which dominates the South African telecoms market, is trading near all-time highs despite its failed R7bn bid for rival Neotel.
The Neotel deal would have given Vodacom access to much-needed spectrum and a fibre network, which would have boosted its broadband roll-out efforts. However, the proposed transaction faced various regulatory hurdles and fierce opposition from competitors. Vodacom eventually walked away from the deal in March after about two years of negotiations.
The group said its roll-out plan of fibre-based broadband services to customers is still on track and its aim to seek spectrum opportunities, as well as openings to accelerate its fixed-line business, remains intact.
Instead, the group would consider a bid for state-owned Broadband Infraco, should it come up for sale. The struggling parastatal has assets worth about R1.75bn, according to its 2015 annual report, but suffered a loss of R244.6m and asked Treasury last year for bailouts of more than R1bn to fund its operations until 2019, ITWeb reported. It has already received at least R1.8bn, which would support its broadband roll-out plans.
A sale of the complete business, or a substantial stake, could be a possibility as the fiscus is under increasing pressure to cut loss-making state-owned enterprises and raise cash. Government sold its nearly 14% stake in Vodacom last year to help fund Eskom’s balance sheet.
In the listed telecoms sector on the JSE, Vodacom has been the top performer after Huge Group over the past year, with its share price gaining 11.6% over the period. In comparison, Telkom was down 28.8% and MTN down 38.4% over the same period.
In fact, the market capitalisation of Vodacom – which also runs cellphone networks in Lesotho, Mozambique, Tanzania and the Democratic Republic of Congo – is just shy of its historically much bigger multinational rival MTN’s. At the time of writing, Vodacom’s market cap was R246bn, compared with MTN’s R275bn. MTN, which is facing a multi-billion rand fine in Nigeria, has operations in 21 countries.
In its latest available results, for the December 2015 quarter, Vodacom reported an 8.7% increase in revenue to R21.7bn, with data revenue increasing by a substantial 27.5% to R5.5bn. Overall, active consumers grew 6.8% to 65.2m, while active data customers increased 14.5% to 30.3m. In SA, 54% of the population is now covered by 4G/LTE.
Vodacom will be reporting results for the year to end March on 16 May.
Possible scenario: Vodacom is currently teetering on a long-term resistance trendline. Breaching it, signalled above 17 500c/share, would trigger a steeper bull trend – potentially the second phase of the primary bull trend – towards 20 000c/share and beyond. With the three-month relative strength index (RSI) maintaining its bull trend, a positive breakout seems possible. Alternative scenario: Vodacom has failed to overcome its major resistance trendline before. Thus a reversal below 15 655c/ share would mark defeat, and an aggressive sell-off to its major support trendline could ensue. A negative breakout of the major bull trend would be confirmed below 14 000c/share.