R1,000 invested in South Africa’s biggest telecoms in 2024
Cell C-owner Blue Label has achieved the best year-to-date return among South Africa’s four largest telecommunications companies.
South Africa’s telecoms landscape has seen a tumultuous start to 2024. The country’s four major players – MTN, Vodacom, Blue Label, and Telkom – have encountered many challenges that have significantly affected their results and share prices.
The telecom sector faces significant headwinds, including rising energy, equipment, and labour costs.
In addition, the regulatory environment remains complex, with issues such as spectrum allocation and data pricing still unresolved.
PwC’s 2023 South African Telecommunications Sentiment Index tracked over 1,617,345 public mentions about Cell C, MTN, rain, Telkom and Vodacom from 1 January 2023 to 31 December 2023.
“Telecommunications providers have cemented themselves as the backbone of modern communication and, therefore, wield substantial influence over society today,” the survey said.
“As all sectors of government, business and civil society become increasingly interconnected, telecom providers play a key role in supporting the advancement of overall tech-development, which impacts the sustainability of many organisations, including their own.”
“However, despite the indispensable nature of their services, a disparity exists between customer expectations and the actual delivery of quality service and support.
This year’s index found that, once again, customer sentiment in the telecommunications industry appears to be significantly more negative than in other industries, such as retail, banking, or insurance.
“A pattern of basic customer service failures Telecom customers continue to grapple with the service providers not meeting their basic service needs,” the survey found.
Customer service accounted for 27.7% of all industry conversations, with an overwhelming negative sentiment of -87.7 %.
In addition, the industry has faced many external pressures over the past few years. For example, 2023 saw the highest levels of load-shedding experienced in South Africa to date.
There was a direct correlation between the average load-shedding stage and the volume of network quality complaints the industry received.
Negative sentiment around network quality was further exacerbated by subsea cable failures causing internet connectivity issues.
From a financial standpoint, MTN and Vodacom have also taken substantial hits from their Rest of Africa operations, which have weighed heavily on their performance.
Nigeria, in particular, has presented a tough operating environment, with its weak currency substantially impacting MTN’s earnings.
Below is an overview of the performance of South Africa’s largest telecoms in 2024 so far.
| Company | Initial investment | YTD share price performance | Current value of investment | Market cap |
| Blue Label | R1,000 | 10.91% | R1,109.09 | R3,864,763,611 |
| Vodacom | R1,000 | -8.28% | R917.17 | R203,025,746,400 |
| Telkom | R1,000 | -21.44% | R785.57 | R11,924,898,533 |
| MTN | R1,000 | -28.54% | R714.57 | R155,414,589,600 |
Vodacom
Vodacom is South Africa’s largest mobile operator by subscribers and the largest listed telecom by market cap.
In its latest results, the company’s revenue grew for the year ended 31 March 2024 but took an earnings hit from its African operations.
The company’s revenue of R151 billion was up 26.4%, positively impacted by the acquisition of Egypt.
Vodacom CEO Shameel Joosub said the company’s Egypt acquisition contributed significantly to the 29.1% increase in group service revenue, supported by a resilient performance in its largest market, South Africa.
Vodacom saw EBITDA growth of 24.3% or 7.8% on a pro forma basis. Free cash flow generation of R18.2 billion supported lower leverage of 0.9x net debt to EBITDA.
Joosub said a 6.4% increase in net profit showcased the robustness of Vodacom’s strategy and execution track record of adapting to changes in its operating environments despite elevated global economic pressures.
“In a year when we celebrate our 30th anniversary, we also surpassed the 200 million customer mark. These are two particularly gratifying milestones in Vodacom’s history,” Joosub said.
“Our customer base is evenly split across our segments, which include South Africa, Egypt, International business and Safaricom, showcasing the breadth of our footprint, which covers more than half a billion people across the continent.”
However, Vodacom’s earnings took a hit in the past financial year, with headline earnings per share declining by 10.8% to 846 cents per share and earnings per share down by 11.2% to 842 cents.
The company attributed this to a combination of start-up losses in Ethiopia, higher finance and energy costs, the impact of absorbing inflationary pressures, and weaker exchange rates across markets, including the recent devaluation of the Egyptian pound.
Vodacom’s share price performance is the second-best among the four largest local telecoms, but the company’s shareholders have still seen a negative return of just over 8% in the year to date.
MTN
While not the biggest in South Africa, MTN is Africa’s largest mobile network operator, with operations all over the continent.
While this has established MTN as one of the largest players, it has proven to be a double-edged sword in recent months.
In its latest trading update for the six months through June 2023, MTN said it anticipates reporting a resilient underlying performance with pleasing momentum in some key markets, including Ghana and Uganda.
“We have also been encouraged by the progress in cash upstreaming from the markets, including Nigeria, which supported the 30 June 2024 holding company leverage remaining largely stable relative to 31 March 2024,” the company said.
However, MTN warned shareholders that its H1 2024 financial results were negatively affected by several macro factors, including
- The further devaluation in the naira against the US dollar impacted MTN Nigeria’s financials, although the business posted a strong underlying operational performance in its H1 24 release
- The translation impact on reporting currency (rands) arising from the devaluation of most local currencies, particularly the naira in its portfolio against the ran
- Operational challenges in Sudan due to the ongoing conflict in the country
These factors will see the company’s half-year earnings per share fall by between 185% and 175%.
The pain MTN is taking from its African operations has earned it the last spot in terms of year-to-date share price performance among South Africa’s largest telecoms.
Telkom
Telkom is South Africa’s only state-owned mobile network operator and has struggled significantly over the past few years.
Once a dominant force in the telecommunications landscape, the company has faced stiff competition from private sector rivals like MTN and Vodacom.
Several factors have contributed to Telkom’s challenges. Firstly, the company has been slow to adapt to the rapidly changing technological landscape.
While competitors have invested heavily in network infrastructure and innovative services, Telkom has often lagged behind.
Secondly, the company has been burdened by inefficiencies and bureaucratic hurdles associated with its state-owned status. This has hampered its ability to compete effectively on price and service delivery.
However, Telkom recently embarked on a turnaround strategy, focusing on cost reduction, network upgrades, and expanding its fiber-to-the-home (FTTH) footprint.
This turnaround is starting to show some green shoots, with Telkom reporting a strong start to its 2025 financial year.
The company recently announced in a trading update for the first quarter of its 2025 financial year that it experienced growth in both revenue and EBITDA, driven by increased data usage and subscriber growth.
Telkom’s focus on cost-cutting and network expansion has also contributed to improved profitability.
While the company cautioned that growth may moderate in the coming quarters, the initial results indicate a positive trajectory for the once-struggling telecom giant.
Additionally, Telkom is offloading non-core assets to generate cash and improve its financial position.
However, it will take time for investors to buy into this turnaround, with Telkom’s share price having dropped by over 21% in the year to date.
Blue Label Telecoms
Despite being the best-performing large telecom stock this year, Blue Label Telecoms’ performance has had a tumultuous journey in recent years, with its fortunes largely intertwined with the fortunes of its significant investment in Cell C. The mobile operator has been a persistent drag on Blue Label’s overall performance.
Cell C was once a strong competitor in South Africa’s telecoms market but has faced severe financial challenges.
Its inability to compete effectively with MTN and Vodacom, coupled with aggressive pricing strategies, has led to significant losses for the mobile operator.
These losses, in turn, have impacted Blue Label’s financial health, as the company holds a substantial stake in Cell C.
Blue Label has remained committed to turning Cell C around despite the challenges. The company has invested heavily in the mobile operator, aiming to restructure its operations, reduce costs, and improve its market position.
However, progress has been slow, and the path to profitability remains uncertain.
While Cell C has been a significant weight on Blue Label’s performance, it’s important to note that the company has other business interests beyond the mobile operator.
For example, Blue Label’s financial services division has shown resilience and contributed positively to its overall results.
However, the performance of Cell C continues to overshadow the company’s other operations.
A successful turnaround of the mobile operator could be a game-changer for Blue Label, unlocking significant value for shareholders. However, if Cell C’s struggles persist, it could continue to weigh on the company’s performance and investor confidence.
In its latest results, Blue Label revealed a significant drop in earnings and revenue for the six months through November 2023.
In its half-year results, Blue Label said its core earnings amounted to R420 million, equating to core headline earnings of 47.15 cents per share.
This is a significant increase from the prior period, when core headline earnings amounted to R35 million, equating to core headline earnings of 3.94 cents per share.
Its low earnings in 2022 can primarily be attributed to the recapitalisation transaction of Cell C.
While this appears to be a significant jump in earnings, the company explained that when excluding certain positive contributions in 2023 and negative contributions in 2022, Blue Label’s earnings actually decreased.
Excluding positive contributions of R65 million in 2023 and negative contributions of R421 million in 2022, core headline earnings declined by 22%, and core headline earnings per share dropped by 23%.
Excluding these contributions, Blue Label’s earnings were:
- Core headline earnings – R355 million (22% decline)
- Core headline earnings per share – 39.90 cents (23% decline)
- Earnings per share – 38.42 cents per share (23% decline)
- Headline earnings per share – 38.66 cents per share (22% decline)
Blue Label said this decline in core headline earnings was attributable to a decrease of R119 million in Comm Equipment Company (CEC), while the remaining entities within the group increased by R19 million compared to 2022.
“The Group remains vigilant in managing its total overhead costs,” Blue Label said.
“Furthermore, load-shedding continues to be a significant challenge faced by our organisation. It has negatively impacted the sale of prepaid electricity, prepaid airtime, starter packs and our call centre operations, all of which are significant revenue streams for the group.”
Regardless of these poor results, Blue Label is the top performer in terms of year-to-date share price growth among South Africa’s largest telecoms.
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