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These two stocks could also be victims of the #Feesmustfall movement

by , 21 September 2016
These two stocks could also be victims of the #Feesmustfall movement
I'm not about to go into a political rant about the violence on university campuses or about the pros and cons of having free higher education for all.

No.

What I want to talk about is the newest campaign that just happened - on the back of #FeesMustFall. It's called #DataFeesMustFall!

Thousands of people are unhappy with the data fees they're being charged by South African cell phone companies.

MTN Nigeria charges R44 for a 1.5 GB bundle, Namibia Teleco charges R139 for a 1 GB bundle and the cost for a 1 GB bundle in Mozambique is R21.

In South Africa MTN charges R160 for a single 1 gig data bundle and Vodacom R149. That's the most expensive of all these countries named - all while these networks have been in South Africa for the longest time. You'd think their established infrastructure and economies of scale mean lower prices for consumers…
 
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Why I believe SA telecoms companies will be hard pressed for growth going forward

 
Clearly there’s pressure on the cellular companies to lower prices.
 
I don’t think the #datafeesmustfall campaign will do all that much.
 
But there’s a trend in both Vodacom and MTN I’ve noticed…
 
Both these companies have seen profit margins drop.
 
MTN’s net profit margin was 19.49 in 2013. By end 2015 it hit 13.74.
 
Vodacom’s net profit margin was 18.58 in 2013. It’s dropped every year since then and hit 16.13 in March 2016.
 
Vodacom’s return on equity decreased by around 10%, MTN’s nearly halved.
 
This tells me these companies are under pressure.
 
People aren’t SMSing any more. They use WhatsApp.
 
People phone each other using Skype, WhatsApp or FaceTime and use their network’s voice calls less and less.
 
What the cell phone companies lose in voice and SMS revenue they’ve made back in data revenue.
 
But both Telkom and Vodacom are rolling out Fibre Optic networks. That means MUCH faster internet for our homes, at a much lower cost.
 
This will be catastrophic for mobile data.
 
 
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There’s no more growth left in the mobile market

 
In 2014 already, South Africa’s mobile penetration rate hit 128%. That means there was 28% more mobile connections than there are people in South Africa.
 
Whilst our population is growing, it’s not at a pace that’ll give the mobile companies any significant subscriber growth.
 
The easy growth is over.
 
I’ll vote with my money – and my vote is not to invest in MTN or Vodacom for the foreseeable future.
 

The big opportunities in the mobile space are here

 
While I’m no longer positive about Vodacom or MTN I am very excited about the opportunities that cheap data brings to the table!
 
Think of mobile payment systems, cloud based storage, streaming music and video…
 
Those are the businesses of the future.
 
Blue Label Telecoms – with its mobile payment systems and prepaid vending services grew its share price 95% in the past year. Return on equity soared from 12.58% in 2013 to 32.38% in 2016.
 
Another company I’m excited about is Datacentrix. It’s a tiny IT company that specialises Cloud Computing. It’s grown its return on equity from 15.73% in 2013 to 17.83% in 2016 – now better than both MTN and Vodacom. Its profits are up from 39cps in 2013 to 62.8cps in February 2016!
 
 
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Up to now things like Software as a service and cloud data storage have been a problem for South Africans with our slow and expensive data.
 
Give it a year, till you have a 100Gig cap at R599 per month. Imagine recharging 5 gigs of data for only R35…
 
These are the fees you’ll pay in the coming year for a fibre connection in your home or business.
 
From here it’s only a matter of time for uncapped internet to hit us at the same and lower prices!
 
This is the future. The pressure will be on mobile companies to keep lower data costs and that’ll impact their growth. They're becoming commodity sellers.
 
In the meantime, companies that provide the value added services on top of our internet use are the ones to watch.
 
Here’s to unleashing real value,
 

Francois Joubert
Editor, Red Hot Penny Shares


These two stocks could also be victims of the #Feesmustfall movement
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