Analyst rates Vodacom as 'buy'
Cellular company Vodacom has a promising, but unproven catch-up strategy, an analyst says.
Imara SP Reid analyst Steve Meintjes says the company has potential to grow through aspects such as its money transfer business, which is growing fast in Kenya and Tanzania. However, the market is waiting for evidence of these plans to "unfurl", he says.
Vodacom has less than 40% of MTN's total number of subscribers and its market cap is also less than 40%, says Meintjes. Its normalised price to earnings ratio is a 25% discount to that of MTN's.
"In our view, this is understandable, given the huge difference in customer base on the one hand, as well as on the other, perhaps, Vodacom's greater focus on network and technology for broadband and resources for total communications strategy."
However, MTN does have the edge in that it is in growth countries where there is an opportunity to increase cellular penetration.
Meintjes says the money transfer business, which is growing fast in Kenya and Tanzania, has enormous potential, although competitors will also play in this field. Capital expenditure of R8 billion is planned for the 2010 financial year to, among other things, "position the group for growth in the sub-Saharan Africa and communications markets, which remain among the fastest growing in the world".
A maximum of 10% growth on the 2009 normalised headline earnings per share, taking headline earnings per share to 561c is possible, Meintjes says. However, growth is predicted to contract in the second half of 2010, which is expected to provide opportunities to buy the share at half-year.
Meintjes says the share is a long-term buy. Recently, Morgan Stanley rated the company as a share to buy, saying Vodacom will probably retain its dominant position in the country and offers access to other growing African nations.
Vodacom's growth potential is yet to be proven, says Imara SP Reid.
Nicola Mawson
10 June 2009 13:25
Comments