SA’s telecommunications sector stands out as one of the best-performing areas on the stock market, outside precious metals and tobacco. In fact, SA telecoms companies have beaten both local and major global indices by up to 48 percentage points in dollar terms since January.
Several factors compounded to help the equities soar:
- A depreciating dollar supported less volatile local currencies across the sector’s emerging market footprint;
- More defensive portfolio positioning into heightened geopolitical risk;
- Base effects supporting strong growth from the three major listed players — MTN, Vodacom and Telkom; and
- Various idiosyncratic factors.
MTN has been a beneficiary of a 50% price tariff increase for the first time in more than a decade in its largest market, Nigeria. Price support was to be expected, but it was the resilience of Nigeria’s volumes that surprised, highlighting the latent demand for MTN’s key growth product — data. This, with cost benefits from VAT allowances and lease restructuring benefits contributed to an increase in expectations of Nigeria’s financial performance.
Not to be outdone, MTN Ghana, the group’s third-biggest operating jurisdiction, also saw strong operational performance. This was buoyed by a recovery in higher margin voice growth and continued momentum in data and mobile money. Strong operational performance was compounded by the marked appreciation of the Ghanaian cedi in the second quarter of 2025. Favourable mobile money tax changes and data price cuts are expected to continue the profit growth momentum.
Vodacom and regional strength
Vodacom has benefited from continued strong growth in its second-largest market, Egypt. This was a function of price increases in December 2024 and a market structure with “price floors”. This concept enables conversion of strong data volume growth into revenue generation, which other markets are unable to fully capture given perpetual effective data price cuts.
The mechanism allows operators appropriate reinvestment rates to sustain economic returns and meet latent demand simultaneously. A stable Egyptian pound allowed conversion of this strong local currency top- and bottom-line growth into rand growth, resetting the earnings base higher as we cycled the material currency depreciation in the first quarter of 2024.
Telkom turnaround
At Telkom, an inflection in management credibility was underpinned by material free cash-flow generation for the first time in almost five years. This turning point was anchored by market share gains at Telkom Mobile, enabled by a structurally lower cost of production, cost-out initiatives, a lower drag from legacy fixed-line services and working capital management.
— SA telecoms companies have beaten both local and major global indices by up to 48 percentage points in dollar terms since January.
Despite the material outperformance of SA telecom equities, we see several short-term headwinds. The US department of justice inquiry into the conduct of MTN Group in Iran and Afghanistan appears to be priced into the equity relative to precedents. However, the geopolitically charged environment makes precedent less reliable, reducing investor confidence.
At Vodacom we expect returns to decline after the conclusion of the CIVH fibre transaction at an elevated acquisition price. We also see risks to its free cash flow and its SA prepaid portfolio that aren’t fully reflected in the elevated valuation. At Telkom, competition is set to intensify in its sole market of SA. We also think its free cash-flow expectations are elevated.
Opportunities from corporate action
In the medium term, corporate action could increase the appeal of the sector. Approval of Vodacom’s CIVH fibre deal has provided the needed regulatory fillip for further consolidation across senior fibre network operators. The industrial logic, both offence and defence, is clear; it’s the most efficient technology to absorb the expected explosion of data traffic volumes in fixed locations while the business mix shifts to higher growth and margin products. Concurrently, it will reduce mobile subscriber churn and associated costs to recapture lost subscribers.
Outside of consolidation, the sector is being primed for another listed entrant in Cell C. At face value the expected above-market earnings growth and dividend payout appear attractive, with the business ably led by a respected management team. However, the enduring nature of its competitive moat — its wholesale agreements with MTN and Vodacom — still has to stand up to scrutiny.
Its valuation, when offered to the market, needs to bake in an appropriate margin of safety for typical post-IPO (initial public offering) risks. In our view, in a range-trading environment for the sector, corporate action may present an opportunity for more agile investors to convert volatility into opportunity.
Long-term investment outlook
For long-term investors we prefer telecoms exposure offering superior regional and product mix shifts towards higher growth and higher margins (mobile money, fibre, data centre partnerships), improving the quality of earnings. Continued US dollar depreciation will convert this to dollar growth, also providing a cost tailwind, a lower free cash flow drag and growing dividends.
While we appreciate the different opportunities presented by each telecommunications company, we’re mindful of poor execution or capital allocation decisions dampening accelerating free cash-flow generation and returns.
• Hoover is equity analyst at All Weather Capital.
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