Exotix tips foreigners to favour firm over Safaricom

Safaricom’s mobile money business remains high—in terms of earning margins. FILE PHOTO | NMG 

By GEOFFREY IRUNGU

More by this Author

Summary

• Investment bank Exotix notes Safaricom money offering is still the top in earnings but Sonatel – a subsidiary of Orange Group – has the highest upside in all the major metrics including earnings margins and growth in active penetration.
• The report focusing on sub-Saharan Africa (SSA) telecommunication companies says while Safaricom’s mobile money business remains high—in terms of earning margins, active penetration and contribution to total revenue—the opportunity for future growth is bigger for the Senegalese firm.

Even as the Safaricom share price hit an all-time intra-day high of Sh30 on Thursday, a report said the firm faces an uphill task in luring foreign investors on account of mobile money business relative to Senegal-based Sonatel.

Investment bank Exotix notes Safaricom money offering is still the top in earnings but Sonatel – a subsidiary of Orange Group – has the highest upside in all the major metrics including earnings margins and growth in active penetration.

Other areas of relative strength are proportion of contribution to revenue, use for remittances as well as access to bank partnerships for float given that it is still at an early stage of expansion.

The report focusing on sub-Saharan Africa (SSA) telecommunication companies says while Safaricom’s mobile money business remains high—in terms of earning margins, active penetration and contribution to total revenue—the opportunity for future growth is bigger for the Senegalese firm.

“When evaluating the success of mobile money in SSA to date, Safaricom’s M-Pesa emerges as the best mobile money offering. However, we believe Sonatel provides the best opportunity for growth in mobile money revenue, as it is at an earlier stage in terms of successful deployment,” says Exotix Capital.

The analysis notes that Safaricom has no access to float but Sonatel has access without having a bank licence, making its money proposition much easier to grow going forward.

READ: Safaricom looks beyond borders for profit growth

The firm says that for effecting remittances from person to person (or business to business), there is an enabling regulatory and economic environment in Kenya for Safaricom but partnerships are made with different telcos and payments companies such as Western Union.

For Sonatel, there is an integrated regulatory and economic environment as well as a regional presence and availability of other Orange Group subsidiaries with which to have direct partnerships for purposes of remittances in SSA.

It also notes Safaricom is increasingly doing more transactions on M-Pesa that relate to businesses as opposed to withdrawals by individuals.

“We expect revenues to suffer as business transactions gain traction at a lower transaction charge than the declining withdrawals,” said Exotix.