After a decade of declining earnings in real terms,vodacom is poised for a resurgence,fueled by ambitious growth expectations set by its management team. This optimistic outlook is drawing the telecommunications giant back into the spotlight for portfolio managers.

Dumisani Chiume, an investment analyst at Sanlam Private Wealth, highlighted the company’s revised earnings growth guidance. Vodacom now projects double-digit growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) annually toward 2030, a significant upgrade from the previous forecast of high single-digit growth.

Egypt: A Key Growth Driver

Vodacom anticipates that its operations in Egypt will be a major catalyst for this growth, following its acquisition of a controlling stake in Vodafone Egypt in December 2022.

• Organic Growth: The business in Egypt is exceeding the country’s inflation rate.
• Favorable Regulations: Regulators are now permitting price increases, creating a supportive environment for Vodacom.
• Currency Stabilization: After a devaluation of over 40%, the Egyptian currency is stabilizing, mitigating negative foreign exchange impacts.

Moreover, Vodacom’s fintech offerings are gaining momentum in Egypt, a country with a large underbanked population. VodaCash has been instrumental in sustaining double-digit growth in both data revenue and financial services.

Sanlam Private Wealth anticipates that earnings from the fintech business will accelerate as adoption increases. A significant advantage is that most of Vodacom’s expenses in Egypt are in local currency, which helps manage costs for sites and towers.

Challenges and Opportunities

Despite the promising outlook, Vodacom faces challenges, primarily the need for continuous reinvestment in its network to maintain quality and reliability. this is expected to increase as the operator expands its network in Africa and traffic grows.

However, the South African industry is moving towards network sharing, which will enable more efficient use of spectrum and allow Vodacom to redirect spending to other areas. This, in turn, is expected to result in a higher average revenue per user (ARPU). Vodacom has already made progress in migrating customers from basic 2G phones to entry-level smartphones, boosting ARPU.

Currently, an estimated 15-20% of the subscriber base in South Africa is still using 2G, presenting further growth opportunities. Additionally, with reduced load-shedding, the need for backup power is decreasing, driving cost efficiencies. Vodacom has identified up to 3 billion rands in annual cost savings.

international Performance and Future Outlook

The international segment presents a mixed picture. The Democratic Republic of Congo (DRC) faces conflict-related disruptions, while Mozambique is expected to finish the year positively.Vodacom is set for strong earnings growth as currencies stabilize across Africa, and management has confirmed no cash repatriation issues.

Vodacom’s stake in Safaricom is also well-positioned, with Kenya set to report positive numbers and Ethiopia’s break-even timeline remaining stable. The ‘beyond mobile’ segment, primarily financial services, contributes 21% to group revenue, with guidance to approach 30% by 2030. This segment has higher margins and requires less capital investment, enhancing Vodacom’s valuation.

Management’s revised guidance establishes a floor to Vodacom’s fair value while pointing to a greater upside, with promises of dividends.Sanlam Private Wealth is broadly constructive on the share,and as we see a path to stronger returns on invested capital versus the cost of capital,we will consider Vodacom for our clients’ portfolios, Chiume said.