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?

Finweek English Edition - - MARKET PLACE - Editorial@fin­ has been rated as one of the top 5 tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the Re­search Team in the Trea­sury Div

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.

What next?

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.

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