SUMMARY
Position: LONG
Upside target: R144.00
Recommended stop-loss: R124.00
Recommendation: BUY
ANALYSTS:
Peet Serfontein, Thabiso Mamathuba
Vodacom is a leading African communications group providing converged mobile communications and related services across six countries: South Africa, Tanzania, the Democratic Republic of the Congo (DRC), Lesotho, Mozambique, and Kenya
The company is a clear market leader in South Africa and remains well-positioned for continued competitiveness. The business is highly cash generative, which gives it the ability to pay consistent and high dividends.
The share is approaching a time exit and we reiterate our bullish bias. The price remains around entry levels (as seen in early February 2021). We therefore extend the time exit to end of June 2021. We adjust the original take-profit target from R141 to R144.
Technically, stable price action remains above major support (see the black solid trendline on the main chart) which makes the share attractive as an investing option.
Based on the Relative Strength Index (RSI), the price seems to be overbought at ~R165 which leaves some upside potential from current levels. This makes our profit target of R144 realistic.
TECHNICAL ANALYSIS
The lower panel shows the Bollinger Band width. The grey shading area shows a period of low volatility (i.e. Bollinger Band squeeze). This occurs when volatility falls to low levels and the Bollinger Bands narrow. Periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can be followed by a significant advance or decline in the share price.
As the share remains above its 200-day simple moving average, a new advance that starts with a squeeze could result in higher prices.
The recent upwards trajectory of the on-balance volume (OBV) indicator indicates that money is flowing into the share.
Our entry range is between R124.00 and R130.00. Our upside target is set at R144.00 (+10.9% upside potential from current levels). This level is just above some major resistance (see the black dotted trendline on the main chart).
Time to exit is end of June 2021 (taking a medium-term stance). Keep the option open to extend the time exit should the price action unfold sideways or reach our profit target in a shorter time.
Price action below R124.00 (-4.5% from current levels) remains a major concern for downside potential and is recommended as a stop-loss. A break below R124.00 might trigger R115.00 as the next target.
LONG-TERM FUNDAMENTAL VIEW
Vodacom is best in terms of execution in the South African market and its in-ternational footprint, except for Kenya, still holds potential from a mobile penetration perspective.
The group’s ability to leverage off technical and other expertise from its parent company, the Vodafone group, gives it a competitive edge among its peers.
Results from 3Q21 were positive with South Africa’s total revenue growth being supported by equipment and non-service revenue. The international segment posted improved results supported by a strong performance from M-Pesa.
While prices are trending lower, data usage is by no means approaching saturation.
The delay in the auctioning of high-frequency spectrum in South Africa remains a frustration.
Key risks to our view include further regulatory intervention both in South Africa and some of the higher-risk countries in which the company operates.
While the company is defensive, weak macroeconomic fundamentals could have a negative impact on the longer-term growth outlook.
