The year’s first half has been gruelling for Africa’s telecom giants—Vodacom, MTN, and Telkom—as reflected in their declining share prices and challenging circumstances.
Vodacom, one of the leading telecommunications operators in South Africa, has faced significant hurdles, particularly in its international markets. A major blow came from Egypt, Vodacom’s second-largest market after South Africa. The devaluation of the Egyptian pound substantially impacted Vodacom’s earnings. The company holds a 55% stake in Vodafone Egypt, making it deeply vulnerable to the country’s economic shifts.
In March 2024, Egypt initiated sweeping macroeconomic reforms, including significantly tightening monetary policy and the decision to float its currency freely. This led to a substantial depreciation of the Egyptian pound against the US dollar, though it also improved liquidity in the interbank foreign exchange market.
Despite local currency performance in Egypt contributing R13.1 billion, or 23.3%, to Vodacom’s group EBITDA, the depreciation caused foreign exchange losses on working capital, impacting the reported EBITDA margin of 40.2%. Investors reacted negatively to these developments, driving down Vodacom’s share price by 9% in the first half of the year.
Further compounding Vodacom’s woes was a Supreme Court of Appeal (SCA) ruling that awarded R29 billion to Kenneth Nkosana Makate over the “Please Call Me” service. Vodacom seeks to appeal this decision in the Constitutional Court, but the uncertainty over the final payable amount has only added to investor concerns.
MTN has had an even rougher time, with its share price plummeting by 26% due to severe currency devaluation in Nigeria, its largest market. Nigeria’s economic troubles have hit MTN hard, with the Nigerian Naira losing significant value. In 2022, Nigeria contributed 40% to MTN’s total service revenue and 46% to its EBITDA.
The financial landscape changed dramatically in June 2023 when Nigeria lifted the US dollar peg on its local currency, leading to a sharp % overnight devaluation of the Naira by 27%. This was followed by another extreme devaluation at the end of January, where the Naira dropped by 40% against the US dollar in a single day due to the central bank aligning the official exchange rate closer to the black market rate.
These economic shocks severely affected MTN’s financial performance, causing a notable decline in investor confidence and share prices over the past year, including a 26% fall in the first half of 2024.
While Telkom doesn’t have significant international operations to worry about, it faces intense competition and strategic hurdles within South Africa. Sanelisiwe Tofile of All Weather Capital pointed out the need for more strategic direction at Telkom, which is struggling against fierce competitors and a heavy regulatory burden.
As South Africa’s third-largest mobile operator, Telkom risks stagnation without clear growth opportunities. Alex Duys from Umthombo Wealth highlighted Telkom’s potential, suggesting that an activist investor could unlock significant value. However, this scenario seems unlikely with the South African government as the controlling shareholder, leaving Telkom’s future uncertain.
The first half of the year has been challenging for South Africa’s major telecom operators, with international market dynamics and domestic competition contributing to their struggles. Investors remain cautious as these companies navigate difficult economic and regulatory landscapes.
