Safaricom’s target of debt-free books signals dividend rise

Wananchi line up to open CDS accounts ahead of Safaricom share offer in 2008. The firm paid out Sh0.31 dividend per share in 2013. FILE 

By John Gachiri

In Summary

• Safaricom may pay off a bond debt of Sh12 billion by 2015, a move that could boost shareholders earnings.
• The firm will pay back the debt in two tranches, Sh7.5 billion in November 2014 and Sh4.5 billion in December 2015.
• Safaricom paid out Sh0.31 dividend per share in 2013, a 41 per cent increase from Sh0.22 paid out a year earlier.

Safaricom is expected to be debt-free in the next two years, a position that could boost the firm’s dividend payout to shareholders.

The telecommunications firm has a bond debt of Sh12 billion in its books, which the management projects will have been paid off by 2015.

In a research report on the company, Kestrel Capital says capital expenditure for the firm is expected to remain constant, leaving it with more money to distribute to shareholders.

“With expected earnings before interest, tax and depreciation and amortisation (EBITDA) growing, capital expenditure remaining stable and debt falling off, we expect free cash to equity will rise.

This should result in higher dividends. The company has given guidance that it will pay up to 85 per cent of free cash flows in 2014,” says Kestrel Capital’s report.

Research analysts ordinarily interview senior management of listed companies before publishing research reports.

The Kestrel report says Safaricom will pay back the Sh12 billion debt in two tranches, Sh7.5 billion in November 2014 and Sh4.5 billion in December 2015.

Kestrel analysts say that Safaricom should, in addition to having more money for dividends, have enough cash to avoid going to the debt market again.

“With adequate cash generated from the operations, we don’t expect that Safaricom will replace the borrowings when they mature. We forecast that the company will begin to earn net finance income from 2015,” says the coverage note.

Safaricom paid out Sh0.31 dividend per share in 2013, a 41 per cent increase from Sh0.22 paid out a year earlier. The Sh0.31 per share dividend payout in the 2013 financial year ended March 31 was a 70 per cent payout ratio on Sh0.44 earnings per share made.

Net profits stood at Sh17.54 billion from Sh12.63 billion made in 2012, a 39 per cent increase.

(READ: Safaricom seen raising dividend as debt falls)

Other analysts say that Safaricom may still not be mature enough to see a significant reduction in capital expenditure that would make it a high-yielding dividend stock since they are still digging deeper into the data business by expanding into the capital intensive fibre to the home (FTTH) market segment.

“They have talked about going to homes,” said Eric Musau, a research analyst at Standard Investment Bank.

Wananchi Group and Jamii Telecom are the main players in this market segment.