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A telco alternative

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For most South African investors keen to participate in the mobile phone sector, the industry has largely been a one-horse race with the success of MTN over the past few years. While Vodacom does provide an alternative, it hasn’t quite captured the imagination in the same way MTN has. That said, Vodafone Group plc may well be an alternative worth considering. The group – currently offering a 5% dividend yield – reported first quarter earnings last week and the numbers also received a boost on the back of global smartphone demand.

Data revenue for first quarter 2011 rose 25% on the corresponding quarter in 2010 and the group is expecting smartphone sales to contribute almost 70% of all phones sold in the year, against 30% over the previous year.

Commenting on Vodafone’s prospects, asset manager Coronation noted: “While mobile penetration is very high in most of the markets it operates in, we’re very positive on the prospects for mobile data, which we believe should result in some acceleration of revenue. In addition to this, Vodafone currently receives no dividends from its US business (Verizon Wireless), though we believe it’s just a matter of time before this will change. As a result, large additional cash flows are likely to head Vodafone’s way soon. According to media reports its chief financial officer has indicated the dividend could come in at around US$5,5bn – a healthy chunk of change.

Vodafone also makes up 3,6% of the Global fund managed by South African value investors RE:CM, a position the firm used price weakness to build up in June and July.
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