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SCOM at Kshs. 4
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2012
#61 Posted : Tuesday, September 28, 2010 12:17:53 PM
Rank: Elder

Joined: 12/9/2009
Posts: 6,592
Location: Nairobi
alma wrote:
My friend is considering selling his safcom business. Sales have dropped over 60% so go figure.


Please describe the nature of business because I don't get. Where's his biggest loss? Scratch cards, Mpesa, Connections, or Handsets?

BBI will solve it :)
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selah
#62 Posted : Tuesday, September 28, 2010 12:21:41 PM
Rank: Elder

Joined: 10/13/2009
Posts: 1,950
Location: in kenya
Those selling because they foresee falling of revenues are really not serious.every body knows and even the CEO admitted it will be hard for Safaricom to maintain the market share as well as the revenues.Just like in the 90s when banks were declaring billions in profits safaricom's profit will fall until it reaches a plateau.

This share is for long time investors ,speculator will continue to be burnt.
'......to the acknowledgment of the mystery of God, and of the Father, and of Christ; 3 In whom are hid all the treasures of wisdom and knowledge.' Colossians 2:2-3
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KulaRaha
#63 Posted : Tuesday, September 28, 2010 12:34:10 PM
Rank: Elder

Joined: 7/26/2007
Posts: 6,514
2012 wrote:
I'm not a safaricom fan but I think they can survive this. I'm sure they have great strategists here and at vodafone. There's still a lot of untapped market and scom remains top of mind in the rural areas mainly because of Mpesa. What is happening now was expected and inevitable and I expect a company of safaricom's stature to have anticipated and prepared early for this.


Im not a fan either, but what scared me is that look on MJ's face when Zain announced 3 bob. It was like he had zero prepartion for this. I suupose when you are market dominator, you become complacent...

Everyone knows Bharti work on the minute factory model, where they churn volume at minimum cost. Surely someone must have seen this coming?

As for untapped market, they say by the end of 2010, every Kenyan above the age of 15 will have a mobile phone...how true is this?

I think profits will drop, must drop, its inevitable...and thus costs must drop also.
Business opportunities are like buses,there's always another one coming
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komera
#64 Posted : Tuesday, September 28, 2010 2:03:41 PM
Rank: New-farer

Joined: 6/29/2010
Posts: 56
Location: Nairobi
kularaha, and the only direction zains revenue and profit will take is up. Ohh did i say i can now call US for 3 bob..sufferingconman, please counter that.
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stocksmaster
#65 Posted : Tuesday, September 28, 2010 3:57:19 PM
Rank: Member

Joined: 9/26/2006
Posts: 463
Location: CENTRAL PROVINCE
SIMPLE VALUATION OF THE SAFARICOM SHARE

Looking at the nature of the Safaricom business, i would classify it into 2:

Voice - About 75%

Others (Data,Mpesa): remaining 25%

EFFECT OF COMPETITION
A) Voice - Assume a 50% reduction in revenue (Calling rates from Ksh 8 to Ksh 3)
B) Others - Assume a 25% growth (growth especially in internet and MPESA but a flat trajectory in SMS revenue)

Thus, mathematically speaking:

0.75x X 0.5 = 0.375x
0.25x X 1.25 = 0.3125x
TOTAL = 0.6875x

This means that the Safcom profits may shrink by as much as 30%.

As such, the share price should ideally reflect this. A 30% reduction from Ksh 6 gives a fair value of Ksh 4.20.

For the foreseeable future, a price range of Ksh 4 - 4.20 represents a fair valuation of this share until the real impact of the new competition is known.

Happy hunting.
x handle: @stocksmaster79
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Much Know
#66 Posted : Tuesday, September 28, 2010 4:11:51 PM
Rank: Elder

Joined: 12/6/2008
Posts: 3,579
@stockmaster, you have completely ignored the issue of price elasticity of demand in your calculation.
If price falls demand increases in two ways:-
1) Increase in usage of talk time minutes(as mukiha has illustrated)
2) Increase in range of customers who can use the product.
I think Morgan Stanley have taken into account many dynamics to come to a price of 5.8/- after price wars
Ras Kienyeji Man
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stocksmaster
#67 Posted : Tuesday, September 28, 2010 4:24:57 PM
Rank: Member

Joined: 9/26/2006
Posts: 463
Location: CENTRAL PROVINCE
@ Much Know: True, the reduced calling rates will increase talk time. My estimate therefore represents the extreme of the pessimistic continum.The Morgan Stanley esimates must represent the other extreme (of the optimistic continum)
Please note that i have also not factored in the customer migration to the competitors. Anyway, mine is a very rough estimate. The true picture will be known in the Safcom first half results.

Happy hunting
x handle: @stocksmaster79
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sheep
#68 Posted : Tuesday, September 28, 2010 4:32:40 PM
Rank: Veteran

Joined: 7/24/2008
Posts: 781
good analysis @stocksmaster

at a p/e of 11 it seems fair...I think Ill jump in if 4.00 holds.
The utimate goal of investing is to buy low sell high;if we re-write this core equation in psychology terms it becomes buy fear sell greed.
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KulaRaha
#69 Posted : Tuesday, September 28, 2010 4:50:57 PM
Rank: Elder

Joined: 7/26/2007
Posts: 6,514
stocksmaster wrote:
SIMPLE VALUATION OF THE SAFARICOM SHARE

Looking at the nature of the Safaricom business, i would classify it into 2:

Voice - About 75%

Others (Data,Mpesa): remaining 25%

EFFECT OF COMPETITION
A) Voice - Assume a 50% reduction in revenue (Calling rates from Ksh 8 to Ksh 3)
B) Others - Assume a 25% growth (growth especially in internet and MPESA but a flat trajectory in SMS revenue)

Thus, mathematically speaking:

0.75x X 0.5 = 0.375x
0.25x X 1.25 = 0.3125x
TOTAL = 0.6875x

This means that the Safcom profits may shrink by as much as 30%.

As such, the share price should ideally reflect this. A 30% reduction from Ksh 6 gives a fair value of Ksh 4.20.

For the foreseeable future, a price range of Ksh 4 - 4.20 represents a fair valuation of this share until the real impact of the new competition is known.

Happy hunting.


Good one! but what of data and mpesa etc does not grow? I think the chances are it willr emain stable...most people have lots of choices when it comes to data...

A 40% dip in profits sounds right...
Business opportunities are like buses,there's always another one coming
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Pablo
#70 Posted : Tuesday, September 28, 2010 4:59:39 PM
Rank: Member

Joined: 3/17/2008
Posts: 567
Location: Nairobi
@ stockmaster.
Thanks for the good analysis however just one more thing.
Safcoms Revenues were 84B in 2009 if we talk of a 30% drop which I seem to agree sould mean 84B x 30% = 25.2B drop.

Last year they made 20B in profits before tax. Remember their cost base is largely fixed and you can do little about contractual payments (rent, licences etc) and depreciation. Even if they cut 5B from the discretionary costs, it will still leave them at a loss.

Where does this leave the share price. A price of 4.20 assuming a p.e of 11 is extremely optimistic.
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