Vodacom updates profit target after Safaricom purchase

Vodacom Group has updated its profit outlook on the back of the acquisition of East Africa’s largest mobile phone company that’s helping it push into financial services.

Vodacom, South Africa’s top wireless carrier, now expects a “mid to high single-digit growth rate” in operating profit for the next three years, CEO Shameel Joosub said in an emailed statement. Vodacom bought 35% of Nairobi-based Safaricom from parent Vodafone Group in 2017 to expand its sub-Saharan African operations and mobile money offering, which is popular in countries with limited access to banks.

The improved outlook contrasts with the 1.1% increase in operating profit in the 12 months to March as Vodacom struggles with a sluggish economy at home, where it is also under pressure to lower data costs following an competition probe. Sales growth in the company’s businesses elsewhere on the continent increased 15%, more than seven times faster than that of South Africa.

While the results weren’t fantastic, there was “no more bad news”, said Nick Kunze, a money manager at Sanlam Private Wealth. “The outlook was also pretty decent for a change.”

Vodacom shares rose as much as 2.7%, paring losses this year to 14%. Crosstown rival MTN Group gained as much as 2.4%, extending 2019’s gains to 11%.

Annual headline earnings per share were R8.62 under IAS 18 accounting standards for the year to March, Vodacom said, compared to an average analyst estimate of R8.98. The company took a number of one-time charges related to the sale of shares to a group of black South African investors as well as transaction costs outside of the country.

Burning issue

One of the burning issues facing both operators is last month’s ruling by the Competition Commission that its data prices — and those of MTN — are too high. Vodacom insists it has cut the effective cost of data by 57% over the past three years, and that the allocation of more spectrum by the government would help.

Vodacom hopes to have access to additional spectrum by the end of the year, Joosub said on a conference call. It has almost been almost 15 years since the industry has had access to additional spectrum in South Africa.

In the 12 months to March, Vodacom’s customers did 11 billion transactions worth R2-trillion across its financial services network, he said.

“The Safaricom acquisition has proven to be a catalyst for extending our mobile money leadership position on the African continent and in ensuring that financial services have become a significant contributor to the group’s revenue,” Joosub said.  — (c) 2019 Bloomberg LP