Vodacom has survived the Covid-19 share crash better than most – including MTN
- Vodacom has seen its share price rise despite the general Covid-19 crash in anything dependent on consumer spending.
- Vodacom has reported a 40% rise in data traffic since the start of the lockdown – and that was before it launched 5G service using emergency-allocated spectrum.
- But rival MTN has not done as well, and that may be down to debt.
- Other JSE stocks that are doing well during the coronavirus crisis include gold shares, gold exchange-traded funds (ETFs) and foreign currency ETFs.
- For more stories go to the Business Insider South Africa homepage.
But even with every prospect of consumers being hard hit by the coronavirus and associated lockdown, one company with a lot of exposure to consumers has bucked the trend, in thanks part to strong demand for its product during lockdown.
Since January 1 until the close of trade on Friday, 8 May, Vodacom's share price is up by 6.4% – compared to a nearly 23% drop for the JSE's All Share Index.
Vodacom is one of the few companies that has been an essential service throughout the lockdown period, and saw a big jump in demand for its product as users were cut off from work internet connections. Yet rival MTN has not had a similarly good run on the JSE: for the year to date MTN is down a little over 40%.
One of the reasons why Vodacom’s share price had held up was that the company wasn’t weighed down by debt like its rival MTN, said Avior Research telecommunications analyst Ruhan du Plessis
In addition, most of Vodacom’s liability was rand-denominated rather than in US dollars.
A company with rand-denominated debt wouldn’t see an increase in debt if the rand depreciated further against other exchange rates – but if the debt were held in US dollars then a weakening rand would result in increased debt in rands, Du Plessis says.
At the end of September last year, Vodacom had liabilities of R83.8 billion while at the end of December last year, MTN had a debt of R216.2 billion.
Another favourable aspect of Vodacom’s business was that about 70% of its earnings were generated in South Africa, while in contrast, MTN makes only 30% of its profits in South Africa, Du Plessis said.
Vodacom’s profit would get a boost from higher demand for its voice and data products during the lockdown, Du Plessis says.
Backing up these comments is that on March 16, Vodacom confirmed that it had experienced increased traffic during the lockdown, including a 40% hike in data, due to more people working and entertaining themselves at home.
“We are expecting this trend to continue in the short to medium-term,” Vodacom adds.
That was before the company launched 5G services last week, using an emergency allocation of radio frequency spectrum it has long begged for, and sought to access via the back door.
Du Plessis says that investors were expecting Vodacom to maintain its dividends, and that was another factor that was buoying the company’s share price.
“Vodacom’s defensive nature is why you would want to hold on to the stock."
Other securities on the JSE that have done well are those that track the sharp rise in the gold price, which has risen as investors have sought safe-haven investments amid the coronavirus.
An example of this is the NewGold exchange-traded fund (ETF), which is up 46% since the start of the year.
Another winner has been currency tracking securities that have increased as the rand’s exchange rate against foreign currencies has weakened, and a good example of this is the NewUSD ETF, which tracks the US dollar/rand exchange rate, and has increased 30% since January 1.
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