Safaricom customers wait for services. Analysts have revised the price
target for the firm’s stock to between Sh6.40 and Sh7, citing lower
market risks. FILE
By CHARLES MWANIKI
In Summary
- The share has been trading in the range of Sh6.40 to Sh6.60 in the past three weeks, ahead of the announcement of its annual results.
International investment banks Morgan Stanley and Renaissance Capital have predicted that Safaricom’s
share price could hit seven shillings, driven by investor expectations
of improved performance for the telecommunications firm.
In separate research reports, analysts at both
investment banks revised the price target for the Safaricom share to
between Sh6.40 and seven shillings citing lower market risks for the
mobile phone services company ease.
“The valuation upgrade is driven largely by our
expectations of better financial performance from Safaricom over the
medium term, less regulatory risk and an overall telecoms landscape that
we believe appears more stable and predictable than two years ago,”
said Rencap in a research note.
A Communications Commission of Kenya (CCK) report
released on Thursday showed Safaricom is still Kenya’s dominant
telecommunications firm with a market share of 77.5 per cent based on
voice traffic.
Its income from short message service (SMS) in the
fourth quarter of last year was more than the total revenue earned by
the other mobile phone companies.
Both Morgan Stanley and RenCap were involved as
transaction advisors in the Safaricom initial public offering (IPO) that
saw the firm list on the Nairobi Securities Exchange (NSE).
The share has been trading in the range of Sh6.40
to Sh6.60 in the past three weeks, ahead of the announcement of its
annual results next month.
Renaissance Capital notes in its report that
Safaricom is now past the key regulatory risk that saw mobile
termination rates drop from Sh2.21 to Sh1.44, eating into revenues it
used to receive from other mobile phone firms that routed calls on its
network.
The peaceful conclusion of the General Election
has also cut political risks, while the deactivation of 1.2 million
unregistered SIM cards and increased taxation on M-pesa transactions has
not affected revenues as was feared.
“We do not envisage any of these measures causing
major harm to Safaricom, and although we expect subscriber growth to be
lower in 2013 than it was in 2012, voice Average Revenue Per User (ARPU)
has trended upwards; and we think any switch-off of Safaricom SIMs
during the SIM registration process will have a limited impact on voice
revenue,” say Rencap.
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Rencap projects that the company will increase its
dividend marginally from last year’s Sh0.22 to Sh0.31, rising to Sh0.36
in 2014 and Sh0.42 in 2015 respectively.
Rencap has also revised revenue expectations for
Safaricom from Sh120.5 billion to Sh122 billion for the year,
calculating that ARPU will be Sh500, having estimated Sh488 in a
November 2012 research note. For 2014, the revenue estimates are revised
upwards from Sh125.3 billion to Sh 132.2 billion.
“From an ARPU perspective, we estimate service or
blended ARPU approaching Sh500 at year end 2013. A favourable product
mix and higher call tariffs should be supportive of such an increase in
blended ARPU,” says RenCap.
Morgan Stanley research points to market growth
potential as an advantage for mobile service operators in Kenya-with
Safaricom taking up 64 per cent of the market share--although they
predict that the company will not grow this share.
“We expect some gradual loss of share, but mainly from lower
ARPU losing generating subscribers. We forecast a loss of 130 basis
points share,” said Morgan Stanley in its research note.
They also expect mobile penetration to rise from
74 per cent (SIM) to 80 per cent by 2015, aiding the growth potential
for the mobile services sector.
Morgan Stanley Research say they believe
Safaricom’s absolute amount of capital expenditure peaked in 2012 and
should stabilise at approximately Sh25 billion, with 10 per cent devoted
to a fibre build-out.
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