Helen Nyambura-Mwaura
VODACOM reported an expected drop in full-year earnings yesterday as call connection rates fell, while its planned investment in data to stay competitive could squeeze future profits.
“It’s been a tough year, probably one of the most challenging we’ve ever faced with major cuts in mobile termination rates, a weak economic environment, exchange rate volatility and increasing price competition,” chief executive Shameel Joosub said, referring to rivals such as MTN Group and unlisted Cell C.
Earnings per share excluding one-time items were R8.60 in the year through March, down from R8.96 a year earlier, Vodacom said yesterday. That compares with an R8.79 median estimate by analysts surveyed by Bloomberg.
Sales rose 2.1 percent to R77.3 billion. Dividends fell more than 2 percent to 805c per share.
“The glory days are certainly over,” Nic Norman-Smith, the chief investment officer of Lentus Asset Management, said.
“You’ve got a time when your profits from your voice are under pressure and you are needing to increase your capital expenditure just to keep in the same position. That means profits in future are likely to be under pressure, which is fine if the stock is priced attractively.“
With a price to earnings ratio of more than 16 times, Vodacom looked overpriced considering the headwinds it faced, he said.
The shares fell 0.74 percent to close at R142.94 in Johannesburg, paring the year’s gain to about 11 percent and valuing the company at R213bn.
Subscribers
MTN Group, second to Vodacom in the local market in terms of subscribers, is up 5.7 percent this year.
They are up 11 percent this year, growing faster than the blue chip index that has added 9 percent so far.
Vodacom said it lost R2bn in revenue after authorities halved the amount operators charge one another for connecting calls, known as mobile termination rates.
The company is awaiting regulatory approval for a deal to buy local internet provider Neotel from Tata Communications, after agreeing to a R7bn price a year ago.
The deal would enable Vodacom to extend internet services for small-to-medium sized businesses.
“We’re still confident of the transaction getting done,” Joosub said. “In the next two weeks or so we should have an indication of where we stand.”
Vodacom is expanding in sub-Saharan Africa to offset the pressure on revenue growth in its home market. – Bloomberg and Reuters