Vodacom pins hopes on Egypt to boost financial services

Vodacom sees its newly acquired Egypt operation as the next big driver for its already dominant financial services unit, which now makes up a sixth of the group’s business. In turn, the group is looking to take advantage of the Egypt unit’s software development prowess to bolster its wider goal of becoming a technology company. 

In late 2022, Vodacom completed the $2.73bn (about R48bn) acquisition of Vodafone’s Egypt operation in yet another move by Vodacom’s parent in reorganising its assets under SA’s largest mobile operator.

“With an unbanked population of 74%, according to World Bank data, we see a compelling addressable market opportunity for Vodafone Egypt and scope to leverage Vodacom Group’s financial services platforms” such as M-Pesa, VodaPay and VodaSure products, “global partnerships and best practices,” the group said.

In addition to financial services, the Johannesburg-based operator sees “attractive synergy potential from combining Vodafone Egypt’s in-house software development with our existing big data capabilities, closer co-operation in scaling pan-African enterprise and internet of things (IoT) solutions, enabling the proliferation of digital services through a platform approach, and also talent sharing.

“As we evolve from a telco to a techco [technology company], access to skilled talent is critical with Vodafone Egypt being an excellent source,” Vodacom said.

This comes as Vodacom reported double-digit growth in the quarter ending December after consolidating results from Vodafone Egypt.

Growth path

“The third quarter of our current financial year is the first set of results that includes revenues from what we expect will be a transformative transaction for the group following the acquisition of a 55% stake in Vodafone Egypt,” CEO Shameel Joosub said in a statement.

He said the acquisition “means that our population reach exceeds 500-million people across Africa, providing a clear growth path for Vodacom”.

Vodafone Egypt was consolidated from December 8 and contributed more than R1.8bn to group service revenue.

Group revenue was up 15% to R30.7bn in the three months to end-December year on year, boosted also by a weaker rand, the company said in a statement on Tuesday.

Stripping out Vodafone Egypt and the weaker rand, group revenue was pedestrian at 4.7% and the subscriber base in its core SA market shrunk 2.4% to 44.668-million.

Group service revenue was up 16%, with normalised growth of 3.5%, supported by growth in data revenue and financial services.

While reporting positive results, the share was down 1.12% in afternoon trade, giving the mobile company a R252bn market value.

“From earnings expectations, it looks like the numbers came in flat [or] slightly light to market expectation, hence the subdued market reaction today [Tuesday],” Unum Capital trader Michael Porter said. 

Load-shedding

Lester Davids, an analyst at Unum, ascribed the net loss of 844,000 subscribers to the group cleaning up its subscriber base by removing nonrevenue-generating customers as another reason for the dull reception.

Both agree that the costs of load-shedding are weighing down Vodacom’s investment case.

“Not mentioned, but possibly related, is the fact that over the past few sessions we have seen other listed companies highlighting the impact of load-shedding on their operations which is also, to a certain degree, affecting network providers,” said Davids. 

Vodacom and rival MTN have leveraged their infrastructure to diversify their revenue bases into financial services, particularly on the continent where levels of penetrations are still low.

The diversification comes as the popularity of voice calls declines and as data prices — and thus profits — drop. The two telecom companies allocate billions of rand in capital expenditure to upgrading their infrastructure.

Revenue in financial services, the fastest-growing contributor to the group’s suite of new services, rose 30.6% to R2.6bn, boosted mainly by demand for services on M-Pesa platform, as well as double-digit growth in insurance policy and airtime advance sales in SA.

Over the past 12 months, M-Pesa processed $366.7bn, an increase of 17%. It remains Africa’s largest mobile money platform by transaction value.

In SA, revenue grew 5% to R21.9bn, while service revenue was up 3%. New services such as financial and digital services, fixed and internet of things were up 9.9% and contributed R2.3bn, or 15.0% of SA’s service revenue.

Vodacom’s share price closed down 0.51% at R122.

gavazam@businesslive.co.za
mahlangua@businesslive.co.za