Until this week, MTN was the only cellular network listed on the JSE, but Vodacom's debut gives punters a choice between two direct rivals.
Vodacom was trading at R55,55 yesterday, significantly down on the R63 of its euphoric first day, partly as it reported its first dip in operating profit. MTN was trading at R117,28, and offered better value, said Steve Minnaar, head of investment research at Old Mutual Investment Group.
“You've got to pick MTN - they have so much more growth in front of them,” he said. The growth potential in many countries where it operated was not fully factored into its share price, which still had an upside of 25%-30%.
MTN plays in 21 countries, and many have low cellular penetration levels and huge populations with a reasonable amount of disposable income.
Vodacom plays in just five markets, due to a historical shackle imposed by its previous co-owners, Vodafone and Telkom.
Minnaar said there was still growth potential in some of those countries, such as Tanzania and the Democratic Republic of Congo. But they were not on the same scale as Nigeria and Iran, MTN territories. CEO Pieter Uys has said he would seriously consider pulling out of the Congo if conditions deteriorated, as economic and political factors had devastated its performance.
But he expected decent expansion now that Vodacom no longer had an unwieldy dual ownership and could act as the African arm of Vodafone.
“Presenting opportunities to our 50-50 board always took a long time, and by the time we got them convinced we'd lost the opportunity,” he said.
“Improved decision-making when the right opportunity presents itself means we are in a much better position to tackle it.”
SA contributes 86% of Vodacom revenue, and as there are already more active SIM cards than people, growth is limited. MTN will also see slowing growth in SA, but has 20 other countries adding to its cash.
Yet acquiring other operators abroad will not add easy profits, as late entrants traditionally struggle. Minnaar highlighted Cell C as an example, with the South African operator crippled by debts of R16bn and failing to post a net profit after eight years.
“How do you trade out of a mess like that? If you are a distant third player you are always on the back foot,” he said.
Duncan Artus of Allan Gray agrees MTN is a better buy. He told Moneyweb that Vodacom was fairly priced, and lacked the kind of growth potential MTN enjoyed through its aggressive Africa expansion.
Source: Business Day
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