Vodacom IPO share price highly valued: experts

Dar es Salaam. Vodacom Tanzania shares, sold from yesterday through initial public offering, are valued higher than most IPOs for telecom companies in African and other frontier markets, experts say.

This means that investors buying Vodacom shares in the IPO at Sh850 per share will have to dig deeper in their pockets than they would have to in other IPOs in telecom firms’ IPOs.

Based on an offer price of Sh850 per share, the price earnings ratio (an indication of how long it would take an investor in years to recoup the capital outlay) is 24.5 times against 19 times for telcoms in other frontier markets, London-based investment firm, Exotics Partners LLP, said in its report. For 2017 PF is expected to reach 30.2 times, according to Exotix.

“Vodacom Tanzania’s IPO valuation looks rich at a first glance. We point out that we have not done a full discounted cash flow valuation and detailed analysis to be able to come to a formal recommendation,” the company said in the report. Vodacom’s IPO was approved by the Capital Markets and Securities Authority last month to sell 560 million shares to the public at Sh850 per share.

“Foreigners are able to participate in the issue, although we note that local people are given priority and foreigners can only buy if the IPO is not fully subscribed by local shareholders,” the report states.

Last June, the Parliament passed the Finance Act, 2016, which stipulates that all Tanzania-based telecommunications companies should list 25 per cent of their authorised share capital on the Dar es Salaam Stock Exchange through an IPO within six months from July 1, 2016.

Tanzania is reported to have 89 telcoms, but only that should be listed on DSE in 2017. Yet, only Vodacom, Tigo, Airtel and Maxcom have so far submitted applications.

Key positives for investment

The firm said Vodacom is the market-leading telco operator with a 31 per cent market share and good growth prospects which should be driven by data and mobile money.

Vodacom also operates in a growing economy with a real GDP growth rate of 7 per cent between 2003 and 2015. Tanzania is the second largest telecom market in East Africa and Tanzanian telcos contribute to 3.8 per cent of the country’s GDP and 11 per cent of tax revenue based on a Deloitte study.

Key risks

The Tanzanian telecom sector is highly competitive and there is more downward pressure on tariffs in the short to medium term, according to the report.

Customer registration initiatives will also put pressure on subscriber uptake in the short term while regulatory risks and currency weakness could also negatively impact Vodacom Tanzania.