M-Pesa and text drive Safaricom’s profit to Sh11bn

From left: Safaricom chief financial officer John Tombleson, chairman Nicholas Ng’ang’a and chief executive officer Bob Collymore during the announcement of the company’s half-year results for 2013/2014 at Safaricom House in Nairobi November 5, 2013. SALATON NJAU  

By Victor Juma and Okuttah Mark

Posted  Tuesday, November 5  2013 at  21:54

In Summary

• The record-breaking earnings came on the back of 17.1 per cent sales growth to Sh69.2 billion that rode on robust performance of non-voice segment of the business including SMS and mobile money transfer service, M-Pesa.
• The company’s free cash flow is, for instance, expected to close the year at between Sh20 billion and Sh21 billion.
• Analysts remain bullish about Safaricom’s prospects going forward, attributing their confidence to the firm’s dominant position in the voice business and continued diversification into alternative revenue streams.

Telecoms operator Safaricom Tuesday set a new half-year profitability record for corporate Kenya after it declared a Sh11.2 billion net income for the six months to September.

The record-breaking earnings came on the back of 17.1 per cent sales growth to Sh69.2 billion that rode on robust performance of non-voice segment of the business including SMS and mobile money transfer service, M-Pesa.

The telecom service provider’s profit growth was also helped by a slowdown in the growth of costs at 9.8 per cent to Sh30.2 billion.

The half-year results have emboldened Safaricom to upgrade its full-year forecast by margins of more than 10 per cent.

“Based on our financial results in the first six months of the year, we have upgraded our full year guidance,” said Bob Collymore, Safaricom’s chief executive.

The company’s free cash flow is, for instance, expected to close the year at between Sh20 billion and Sh21 billion.

Mr Collymore said non-voice business had delivered strong growth but maintained that voice remains the company’s core business though its contribution to total turnover continued to decline as it diversifies into data, handset sales, and mobile money services.

Standard Investment Bank (SIB) analysts described the results as better than expected.

“The company posted a 47.4 per cent growth in earnings per share (EPS) to Sh0.28, outperforming our estimate of 30 per cent,” SIB said in a statement.

Safaricom did not declare an interim dividend but the performance means its ability to pay dividends has increased significantly as measured by potential dividends on each share or EPS.

The telecom operator declared a dividend of Sh0.31 per share for the year ended March 2013 compared to Sh0.22 the year before.

Analysts at Kestrel Capital said Safaricom has hinted that it will pay up to 85 per cent of free cash flow in the current financial year which grew by 167 per cent to Sh13.7 billion in the half year under review.

This means that the telecoms operator could raise its dividend payout to Sh0.40 per share based on the policy of allocating up to 85 per cent of free cash flow – expected to rise to Sh20 billion – for dividends.

Safaricom announced its results shortly after its stock recorded a slight drop at the Nairobi Securities Exchange where it has rallied to an all-time high of Sh9.90 since December.

Tuesday, Safaricom stock closed trading at Sh9.65 compared to Sh9.70 the previous day. The share’s rally to the current level represents a near-doubling of the Sh5 initial public offer price