Finweek English Edition
End to two-year consolidation?
vodacom provides a range of services, including mobile voice, messaging, data and converged services. Vodacom currently dominates the mobile market in SA. It also has operations in Tanzania, the DRC, Mozambique and Lesotho. Through Vodacom Business Africa (VBA), the company offers business-managed services to enterprises in over 40 countries. Their mobile financial services, M-Pesa and M-Pawa, provide money transfer, savings and credit services.
Share price history
Vodacom’s share price reached an all-time high at 18 700c/share in 2017 after winning the fight against MTN on being the “first and best 4G network”, ruled by the Advertising Standards Authority. When voice and SMS revenues started to decline, Vodacom expanded into financial services and saw an opportunity in Kenya where it acquired 34.94% of Safaricom for R34.6m. Today Safaricom is East Africa’s biggest company by valuation and dominates the mobile money transaction business, with a strong climb in market capitalisation to $13.3bn.
Vodacom’s share price started to lose upside momentum in 2018 as the sluggish SA economy hurt consumer spending, which increased bad debt that Vodacom had to incur for the very first time. It broke out of its longterm bull trend in June 2018, after reporting a slower revenue growth in its domestic market.
Vodacom’s share price crashed “better” than most during the Covid-19 sell-off in February 2020. In fact, after touching at 9 070c/share in March 2020, the share rapidly recovered its losses. Vodacom reported a 40% rise in data traffic at the start of lockdown as users were cut off from work internet connections – the share subsequently abandoned its bear trend in May 2020. However, its ongoing court battle over the rights of its “Please Call Me” functionality has been a dark cloud hovering as settlement negotiations continue.
On the charts
Vodacom’s share price has been encountering major resistance at 13 935c/share for a few months. Not even news that the company is expanding further in financial and e-commerce could push the share price through that ceiling level – Vodacom has developed a so-called super-app with Alibaba Group which will allow customers to take out loans and shop online through AliPay. It wants to expand its financial technology offering in SA while waiting for a long-promised auction of spectrum. The delays with the wireless spectrum auction process have now become Vodacom’s conundrum.
The high-demand spectrum, which telecom providers had hoped to use to speed up the rollout of new technologies such as 5G, has been put on ice – the process has already been delayed by over a decade. Vodacom and MTN, who are currently the market leaders, have long called for more spectrum to expand their data services and boost revenues, but Icasa wants to prioritise smaller operators, which means the larger carriers may be shut out of bidding for the new 5G spectrum. Though Vodacom hasn’t formally objected to the terms of the auction, it has stressed the urgency of a speedy agreement – and so has President Cyril Ramaphosa, who has stated that the delays are not in the population’s interest.
What to anticipate
After breaking out of its bear trend, Vodacom has been trading in a sideways band between 13 935c/share and 12 020c/share. However, the recent intra-week break through the 13 935c/ share pivotal level is a sign that buyers are willing to trade the share up. If so, a two-year inverted head-and-shoulders pattern would end and upside to prior resistance levels would commence.
How to trade it
Go long: A positive breakout of the bullish reversal pattern will be confirmed above 13 935c/share.The level was breached, but its three-week relative strength index (3W RSI) was overbought, hence the pullback. Still, support retained at 13 250c/share would be a bullish sign – prepare to go long above 13 935c/ share when the 3W RSI is not overbought. Upside to next resistance at 16 030c/share could ensue. Increase long positions above that level as momentum will likely persist towards the all-time high at 18 700c/share.
Go short: Downside through 13 250c/share could see the price drop further to 12 510c/ share. Key support at 12 020c/share could be retested upon further selling, thereby extending the sideways pattern. In this instance, refrain from going long. ■