Vodacom’s release from the dead hand of Telkom early next month could see billions of rands unlocked and give the economy and shareholders’ pockets a boost.
Vodacom has an estimated value of between R50-billion and R80-billion, according to analysts canvassed by the Mail & Guardian. It will list on the JSE on May 5. Although its biggest rival, MTN, sits with a market capitalisation of R199-billion, Vodacom will still be among the top 10 companies listed on the JSE.
Telkom has agreed to sell 15% of its 50% stake in Vodacom to Vodafone — its other 50% shareholder — for R22.5-billion.
The remaining 35% will be unbundled to Telkom’s shareholders. The government will share in the spoils with a 13.8% share of Vodacom and the Public Investment Corporation will get 4.6%.
This will leave Vodafone as the majority shareholder with 65%. The remaining 35% is likely to be held directly on the JSE.
But considering that Telkom holds a 50% stake in Vodacom and that its market capitalisation is currently valued at R57-billion, it appears a significant undervaluing of Telkom is under way.
Assuming Vodacom is worth R70-billion, Telkom’s remaining 35% share of Vodacom is worth R24.5-billion. Telkom is expected to receive R22.5-billion from Vodafone for the other 15% of its stake, giving a value of R47-billion to Telkom’s 50% holding of Vodacom. This leaves the remainder of Telkom valued at R10-billion.
But Telkom is expected to pay out a dividend from the R22.5-billion to its shareholders in respect of the 15% share of Vodacom that it will sell, and this will affect the remaining value of Telkom.
There is definitely some value in buying into Telkom before the listing, a number of analysts told the M&G this week. Shareholders will receive one Vodacom share for every Telkom share and a dividend too.
One analyst said Telkom is very cheap at the moment but not a bargain, because the company’s results, soon to be announced, are expected to be poor.
“It seems as if their Multilinks business in Nigeria is struggling and with the closure of Telkom Media they are under pressure,” said one analyst.
Vodacom was the first out of the starting blocks in offering cellular services in South Africa, but MTN is the more successful of the two: its market capitalisation is expected to be at least twice Vodacom’s.
Vodacom represents a good investment for the risk-averse investor, the analyst said, adding, however, that he would rather invest in the MTN Group, which was a better growth stock.
Another analyst said that he too would rather invest in MTN: “Vodacom is still a healthy business and in Africa there is potential for growth. However, MTN is a lot more aggressive and is not restricted to African markets.”
He added: “MTN is already looking at huge growth opportunities like India. It’s a better investment — but Vodacom is not a bad investment.”
IDC Telecoms analyst Richard Hurst says there is obviously huge growth potential in Africa, but Vodacom will have to play its cards smartly to harness that growth.
“Vodacom is not completely out of the picture in Africa,” said another analyst. “They will look to use their Gateway acquisition to jumpstart their move into Africa. This is important because one of the biggest issues with doing business in Africa is knowing what is happening on the ground.”
In August last year Vodacom announced that it would be acquiring Gateway Telecommunications SA for just more than R6-billion. Vodacom chief executive Pieter Uys said at the time that the acquisition of Gateway reflected Vodacom’s strategy of repositioning itself as a leading pan-African provider of communications services and of diversifying from its current status as primarily a mobile-centric network operator.
Gateway Communications has customers in more than 40 African countries and offices in 17 of these countries, with a customer base exceeding 583-million people across the continent. Vodacom already has operations in Tanzania, Lesotho, Mozambique and the Democratic Republic of Congo.