|
Related Topics |
Background and overview of Vodacom (VOD)
According to Vodacom's website: "Vodacom operates in five countries namely South Africa, Democratic Republic of Congo, Lesotho, Mozambique and Tanzania. Vodacom's footprint in sub-Saharan Africa is strengthened by its subsidiary Vodacom Business Africa, Africa's largest provider of satellite and terrestrial network infrastructure and interconnection services for African and International telecommunications companies. Vodacom Business Africa's pan African network and on the ground presence in 14 African countries"
While Vodacom has a footprint outside of Africa, it is nowhere near as significant as MTN's footprint in Africa. MTN being active in some of the more populis African countries such as Nigeria. But Vodacom has the bigger presence in South Africa between the two firms. Based on their market capital, they are similar in size, with Vodacom recently overtaking MTN as the more valuable company for the first time.
While Vodacom has a footprint outside of Africa, it is nowhere near as significant as MTN's footprint in Africa. MTN being active in some of the more populis African countries such as Nigeria. But Vodacom has the bigger presence in South Africa between the two firms. Based on their market capital, they are similar in size, with Vodacom recently overtaking MTN as the more valuable company for the first time.
The graphic below provides the share price history of Vodacom (VOD) as well as various technical analysis tools.
VOD share price graph
The above chart clearly shows that VOD's share price has shown extremely strong growth of the last number of years, and shareholders have been handsomely reward. Below the start of our financial review of VOD's results
Scroll over or click on the funnel chart to get more details of VOD's latest financial results
Financial review:
The net profit achieved by Vodacom amounted to 16.1%, that is almost exactly the same percentage achieved by corporate rival MTN (with a massive R9billion fine included). MTN clearly operating in the higher margin countries or in countries where there is less competition to squeeze the margins. Nonetheless a profit margin of 16.1% is extremely healthy.
The pie chart below shows the contribution Vodacom's South African and Internationals operations make to their revenue and EBITDA earnings.
Its clear that South Africa is Vodacom's main cash cow, with it bringing in around 75% of their revenue and 83.5% of their profits. Clearly their South African operations are more profitable than their international ones. Question is whether this is due to tighter margins in their non South African countries of operation or are they taking South African consumers for a ride by charging them excessive fees compared to the other countries they operate in.
Vodacom generated earnings per share for the 6 months ended of R4.40 a share. Assuming the same is achieved for the next 6 monthis it will place Vodacom on a PE ratio of 21. Which seems like a fairly stiff PE ratio. But the service they provide modern day consumers cant go without. These days everything is done via smart phones and more and more data is being used, and VOD will keep making money as long as there is a demand for the goods. Therefore a PE of 21 should not be seen as that expensive is future earnings potential looks bright.
Cash generated a share for the 6 months ended came in at just over R5.70 a share. Pretty strong cash generation shown by Vodacom. A small risk for them would be consumers not paying back their accounts, as tough economic climate bites into consumer's disposable income.
Trade and other receivables under their current assets has increased by R136 million over the last 12 months. Should this baloon anymore one shoudl start wondering whether Vodacom's contract clients are struggling to pay their acounts.
Vodacom generated earnings per share for the 6 months ended of R4.40 a share. Assuming the same is achieved for the next 6 monthis it will place Vodacom on a PE ratio of 21. Which seems like a fairly stiff PE ratio. But the service they provide modern day consumers cant go without. These days everything is done via smart phones and more and more data is being used, and VOD will keep making money as long as there is a demand for the goods. Therefore a PE of 21 should not be seen as that expensive is future earnings potential looks bright.
Cash generated a share for the 6 months ended came in at just over R5.70 a share. Pretty strong cash generation shown by Vodacom. A small risk for them would be consumers not paying back their accounts, as tough economic climate bites into consumer's disposable income.
Trade and other receivables under their current assets has increased by R136 million over the last 12 months. Should this baloon anymore one shoudl start wondering whether Vodacom's contract clients are struggling to pay their acounts.
A few financial ratios to mull over for Vodacom (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 2.35 (more than 2 shows high levels of financial leverage).
- Current Ratio: 1.01 (a measure of liquidity. Less than one signals possible trouble in paying off current liabilities)
- Quick Ratio: 0.97 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA): 8.6%
- Return on Equity (ROE): 22.8%
- Net Profit Margin:16.13%
- Dividend Yield: 4.76%
Valuation:
While the consumers in South Africa are under pressure, and Vodacom's margins being less than their rival MTN's we value Vodacom at between R170.41 and R171.80 based on their current financial results. It's close to being fully priced and we would recommend rather looking at MTN (even though they facing tough issues right now). They might offer a better long term return based on their current share price
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question