Following a challenging period marked by rising input costs, constrained consumer wallets, and volatile African markets, sentiment is beginning to improve in the telecos sector.
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Shmuel Simpson
The South African telecommunications sector has long been considered a defensive play, offering relative stability through economic cycles due to its critical infrastructure role and dependable cash flow generation. Despite macroeconomic headwinds, regulatory pressures, and currency volatility in recent years, telcos have continued to provide essential services with relatively low churn.
Following a challenging period marked by rising input costs, constrained consumer wallets, and volatile African markets, sentiment is beginning to improve. Currency stabilisation, pricing momentum, and operational efficiency are laying the groundwork for cautious optimism across the sector.
Vodacom: Egypt Stabilising, Local Market Rational – but Limited Upside.
Vodacom enters 2025 with a more balanced geographic exposure, thanks in part to its acquisition of a 55% stake in Vodafone Egypt. While this market was initially challenged by currency devaluations and inflation, there are signs that macro conditions are beginning to stabilize, potentially unlocking earnings upside from the Egyptian unit. Closer to home, the South African mobile market has seen improved pricing discipline, and competition appears rational, particularly in the prepaid segment. Vodacom’s focus on expanding its fintech and fibre footprint adds a structural growth leg, but with the share price having run strongly in recent months, much of the good news appears priced in. Upside from here looks relatively limited unless Egypt surprises materially on the upside or there is a shift in regulatory tailwinds.
MTN: Turning the Corner in Nigeria, Mixed Backdrop Elsewhere
After several turbulent quarters, MTN may finally be turning the corner in Nigeria, its largest market. The Central Bank's efforts to stabilise the naira are gaining traction, and critically, telecom operators were recently granted long-awaited tariff increases. This should support revenue recovery and margin expansion, especially as data usage continues to grow. Other key markets like Ghana, Côte d’Ivoire, and Uganda are performing solidly, contributing to a more balanced portfolio. However, the South African operations remain under pressure from load shedding, crime-related infrastructure theft, and price-sensitive consumers. In addition, MTN’s exposure to Iran via its associate MTN Irancell remains a lingering concern given the fluid geopolitical landscape. Still, if the macro backdrop remains benign and the group continues to execute well on cost control and capex efficiency, there is meaningful upside potential from current levels.
Telkom: Restructuring Bearing Fruit, Valuation Offers Leverage
Telkom has quietly made significant operational progress. After years of underperformance, management has delivered on its promise to streamline operations, with the planned disposal of Swiftnet marking a key step toward unlocking value. The South African mobile and fibre operations have shown improving momentum, aided by disciplined capital allocation and cost containment. Most encouraging is the improving cash flow profile, which, if sustained, could enable the group to materially deleverage over the next 12–18 months. In a sector where capital intensity often weighs on returns, this shift could support a re-rating. Given the low base, Telkom arguably offers the most upside of the three majors - provided execution remains tight and further corporate action materialises.
Shmuel Simpson, an analyst at 36ONE Asset Management, part of the PPS Managed Fund investment team.
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