Vodacom Turns to Safaricom for Higher Operating Profit

(Bloomberg) -- Vodacom Group Ltd. is turning to its East African mobile-phone carrier Safaricom Plc to deliver higher earnings in the coming years.

South Africa’s top wireless carrier forecast “mid-high single-digit growth rate” in operating profit for the next three years, alongside the release of full-year financial results on Monday. The carrier updated its outlook to include Nairobi-based Safaricom, in which it purchased a 35% stake from its parent company Vodafone Group Plc in 2017. The deal expanded Vodacom’s sub-Saharan African operations and mobile-money offering.

Vodacom, which is struggling with a sluggish economy at home, reported a 1.1% increase in operating profit in the 12 months through March. It is also under pressure to lower South African data costs following an antitrust probe. Sales growth in the Johannesburg-based 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.”

Shares Gain

Vodacom shares rose as much as 4.4% and were trading 4.2% up as of 11:14 a.m. in Johannesburg, paring losses this year to 12%. Crosstown rival MTN Group Ltd. gained as much as 2.9%, extending 2019’s gains to 12%.

Full-year headline earnings per share were 8.62 rand, compared with an average analyst estimate for adjusted profit of 8.98 rand. 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.

Vodacom Turns to Safaricom for Higher Operating Profit

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, Chief Executive Officer Shameel 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 through March, Vodacom more than 36 million customers did 11 billion transactions worth 2 trillion rand ($140 billion) 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.

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