Courtesy D&B 13 July 2015
On to a new phase: Spectrum and Mobile MoneyWe initiate coverage on Safaricom Ltd with a
BUY recommendation and a
target price of KES. 18.67, a 17 per cent upside from the current price of KES. 16.00. Our recommendation is based on our views on:
Strong earnings growth outlook. The Company has delivered strong performance historically. We are bullish on earnings growth expectations, with a forecasted 6.0 per cent profit after tax CAGR for the forecast period.
Brand strength and firm market positioning. Safaricom remains the most preferred and the largest telecommunications network in Kenya. With a subscriber market share of 67.4 per cent and an all-round product offering model, we expect increased growth in customer numbers and reduced customer churning rate.
Valuations still attractive. Safaricom trades fairly at par with its peers both within MENA and Global space, offering an additional alpha space. The
Company trades at a PE of 20.11x and an EV/EBITDA multiple of 11.11x against a peer average 17.42x and 7.40x respectively. The share price rallied 13.90 per
cent year to date on expectations of the full year 2014 results.
Innovations and product offerings. Safaricom is at the forefront in innovations within the telecommunications sector globally, having been featured as one of the top ten most innovative companies in Africa by Forbes. Introduction of MPESA
revolutionised Mobile Money globally. The Company has further integrated M-PESA into most business transactions, including mobile banking. The Company has recently launched its set-top TV box, which will rival the existing boxes further growing its Data revenues. Safaricom further plans to launch an M-PESA MasterCard, in partnership with Kenya Commercial Bank
(KCB), the largest bank in Kenya by assets.
The recent developments in the Kenyan mobile telecommunications have resulted in pricing changes and product innovation. Safaricom has solidified its position by offering wider coverage across Kenya, improving on its infrastructure and enhancing its cost management initiatives.
With a subscriber base of 23.5 million customers out of an estimated population of 46 million, Safaricom, has a huge platform to leverage upon for future growth.
Partnerships with local institutions to deliver innovative services will be a key determinant in further growth. The recent partnership with KCB to offer mobile based lending will drive further growth in revenue.
However, the regulatory environment remains a concern due to recent investigations by Competition Authority of Kenya into Safaricom’s dominant market position. We view it to have minimal impact on Safaricom in the short term.
We anticipate no significant revisions of tariffs going forward since the market is already at the lowest tariff levels
Pesa Nane plans to be shilingi when he grows up.