Vodacom Falls as South Africa Consumer Woes Hit Sales Growth

(Bloomberg) -- Vodacom Group Ltd. shares fell the most in almost eight months after the wireless carrier with the most South African customers reported slower revenue growth in its domestic market, as a sluggish economy hurt consumer spending.

• South African first-half sales rose by 4.3 percent, compared with 7.7 percent last year. Overall earnings before interest, taxes, depreciation and amortization increased by 4.7 percent, while the interim dividend was increased to 3.95 rand a share from 3.90 rand.

Key Insights

• The unit of the U.K.’s Vodafone Group Plc experienced tough conditions in South Africa, with weaker device sales largely behind the sales slowdown. The carrier has used investment in data to offset the weak environment, helping to boost customer numbers, though revenue per user fell as callers opted for cheaper packages.
• A 14 percent fall in headline earnings per share included the impact of a 16.4 billion-rand empowerment deal agreed to earlier this year. That helped Johannesburg-based Vodacom better comply with government initiatives to increase non-white participation in the economy.
• Vodacom’s international portfolio was a bright spot, helped by the recent acquisition of a stake in Nairobi-based Safaricom Plc from its parent. Services such as money-transfer service M-Pesa have helped drive growth, and the 2.3 million new customers in the period almost matched the South African figure of 2.5 million.

Market Reaction

• Vodacom shares fell 7.8 percent to 120.22 rand as of 12:35 p.m. in Johannesburg, extending the decline for the year to 17 percent. Crosstown rival MTN Group Ltd. dropped 5 percent and landline specialist Telkom SA SOC Ltd. slipped 4.3 percent.
• “Vodacom’s dividend was good, and its international relations are improving, but South Africa’s data revenue growth was a bit disappointing,” said Peter Takaendesa, a money manager at Mergence Investment Managers.

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• “We have invested 4 billion rand ($278 million) in South Africa in the past six months and at the same time we reduced voice and data prices which affected” growth, Chief Executive Officer Shameel Joosub said on a call with reporters.”
• A long-awaited spectrum auction is expected in the first half of 2019 that will also weigh on spending, he said.

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