We release our Safaricom Plc “Safaricom” full year 2018/19 earnings expectations and valuation update report ahead of the annual financial results release slated for 3rd May 2019.
We recommend a HOLD on Safaricom on the basis of our fair value estimate of KES.30.01 a revision from KES.27.22 following the company’s HY2018/19 Financial results release in October.
Our Profit After Tax (PAT) estimate FY2018/19 is KES.67.6Bn a 22.2% growth over the previous year and with it a KES.1.35 dividend (FY2017/18 - KES.1.10)
We are optimistic about strong growth in earnings in key service revenue lines such M-Pesa and data (both mobile and fixed).
Our voice and mobile data revenue forecast is KES.96.1 & KES.41.4Bn respectively.
However, we are less optimistic about the traditional telecommunication service revenue lines voice and messaging forecasting 0.5% growth in revenues for the period in focus.
It is probably still too soon to accurately predict the impact of Safaricom’s new overdraft service “Fuliza” but believe that it will have a major impact on M-Pesa revenues, customer acquisition as well as retention in the medium term.
We are of the opinion that “Masoko” Safaricom’s E-Commerce business is still at its infancy with minimal contribution if any to the company’s bottom line.
In terms of subscriber market share, Safaricom has remained fairly resilient to aggressive competition especially in the business lines of voice calls and mobile data.
It has however implemented several strategies that we view as fairly effective in protecting its market share.
The customer retention impact of Fuliza also means that all other service revenues benefit from this customer loyalty as much as the ownership of multiple sim cards and multiple sim card phones is growing.
The threat of regulation appears to be declining perhaps influenced by market data that shows a reduction in Safaricom’s market share in the last two years or the proposed merger between Safaricom’s two main competitors Airtel and Telkom.
We expect the merger to have a major impact in the competitive intensity and particularly on the services where customers are highly price sensitive such as mobile data and voice calls.
There is a possibility of the merged entity aggressively tapping into the mobile money industry but this we expect to have limited success.
Safaricom in our opinion still presents great business value with forecasted growth in earnings, continuous innovation and market growth opportunity. Download Report