Hang on if yield is important
With MTN off the radar as a pure mobile telco investment (thanks to corporate issues), that leaves Vodacom as the only alternative and recent results were all right but not thrilling.
Importantly, the dividend has remained flat for the second set of results in a row. While revenues are increasing, those increases are modest at best, with headline earnings per share (HEPS) flat for the period. This was blamed on “a tax adjustment in Tanzania and foreign currency impacts”, without which Vodacom would have seen a very modest 3.5% increase in HEPS. The mobile industry is changing as it moves from over-priced voice and SMS to becoming essentially a low-margin but profitable data utility. Globally mobile companies are trying to resist the change and Vodacom is introducing video-ondemand as a solution to the problem. But this is a long shot and we haven’t seen any evidence of it working elsewhere. The dividend yield is attractive at almost 6% and the company should be able to at least hold its dividend, offering shareholders a reason to hang on if yield is important. Otherwise avoid.