All eyes on Vodacom as it reports results - TechCentral

All eyes on Vodacom as it reports results

pieter uys

All eyes will be on Vodacom and its group CEO, Pieter Uys, on Monday. That’s when the cellular group announces its interim results for the six months to 30 September 2009. And Uys, pictured, could have to answer some tough questions.

Analysts and investors will be watching for signs of a slowdown in Vodacom’s key SA operation and will want details of how it is performing in markets elsewhere in Africa.

Kaplan Equity Analysts MD Irnest Kaplan says investors will be keeping a keen eye on how Vodacom has performed in comparison with MTN. The latter last month reported a 5% slump in its SA subscriber numbers in the third quarter to 30 September, blaming new legislation for a slowdown in gross connections.

Operationally, Kaplan says Vodacom appears to be doing reasonably well. In an earnings update published on 20 October, it indicated that it expected its revenue to rise by about 10% year-on-year and for earnings before interest, tax, depreciation and amortisation to climb by 8%.

This would imply that Vodacom has managed the introduction of the new legislation, known as the Regulation of Interception of Communications and Communication-Related Information Act (Rica), better than MTN, Kaplan says. However, Vodacom’s latest figures will only contain the impact of two months of Rica, which came into force on 1 August.

Rica, which is meant to help the police in their fight against crime, requires customers to provide proof of identity and residence before they can purchase a new Sim card from a cellular service provider. MTN has blamed the legislation for the poor performance of it SA operation. And Cell C recently told TechCentral that Rica has led to an 80% reduction in gross connections on its network.

Despite its reasonable operational performance, Vodacom has warned that its headline earnings per share could be down by as much as 20% due to various factors, including higher finance charges. And a writedown of R3,2bn associated with the company’s R5,7bn acquisition of pan-African communications group Gateway could result in Vodacom struggling to report a basic profit.

Uys is likely to face a barrage of questions from analysts over the price it paid for Gateway. Some analysts have already accused the group of overpaying for the acquisition.

Says Kaplan: “What I want to know is, were they just overly enthusiastic about [Gateway] or did they make a mistake? Vodacom bought Gateway just before the economic crisis hit, but they should have done their homework better.”

Kaplan says he also wants further information on deteriorating economic conditions in the Democratic Republic of Congo and how that has affected the group. Vodacom warned last month that it had reversed a deferred tax asset worth R500m due to the reduced profitability of the DRC business.  — Duncan McLeod, TechCentral

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