Mobile-Money Growth Fuels Safaricom’s 20% Jump in Profit

NAIROBI (Capital Markets in Africa) – Safaricom Plc.’s profit grew 20 percent in the six months to end-September, underpinned by money-transfer income and even as growth in mobile-data sales slowed.

Profit at East Africa’s biggest company by market value came in at 31.5 billion shillings ($309.6 million) while service revenue grew almost 8 percent to 118.2 billion shillings. While mobile-data sales climbed 11 percent to 19.5 billion shillings, that was slower than the 31 percent achieved a year earlier.

Revenue from the M-Pesa, the company’s popular mobile-money service, grew 18 percent to 35.5 billion shillings, the company said. Of Safaricom’s nearly 30 million subscribers, 21 million use M-Pesa for payments including utility bills, rent and even airline tickets and sports bets. The company expects to partner with Western Union Co. to enable global payments, Chief Executive Officer Bob Collymore said at a results presentation in the capital city, Nairobi.

“The future of M-Pesa is an exciting one,” Collymore said. “During the first six months of the year, M-Pesa was the main driver of growth, contributing 64 percent of service revenue growth, further accelerating displacement of traditional voice and messaging services. Mobile data and fixed data contributed 30 percent of total service revenue growth.”

Safaricom shares gained as much as 6.4 percent to 25 shillings on the Nairobi Securities Exchange, the most in six years. The stock has lost 9 percent so far this year, compared with a 14 percent decline by the FTSE NSE 25-Share index.

Tax Headwinds

Safaricom is in talks with Kenya’s government after the state raised excise tax to 15 percent from 10 percent for telephone and internet-data services, and 20 percent on fees for money transfers by both banks and telecommunications companies, he said.

“Going back to 10 percent” would be an ideal outcome, Collymore said in an interview. “The ideal outcome is that we don’t see any more tax increases in this space.”

The company reduced its capital expenditure in the six months by 2.3 percent to 17 billion shillings, an expected decline because the company has done most of the hefty investment required in rolling out a network, according to Harrison Gitau, a senior analyst at Apex Africa Capital Ltd.

“We actually expect them to shrink capex intensity to about 13 percent or sub-13 percent in the next five years,” he said. “They are targeting between 14 percent and 15 percent capex going forward.”

Apex has a strong buy recommendation on Safaricom despite headwinds from the increased taxation, saying the company “has shown in the past its ability to navigate through uncertain waters.”

“With a very high return on equity (53.6 percent) and impressive net earnings margin (25.6 percent), the firm ticks most boxes for fundamental investors,” Apex said in an emailed note.

Source: Bloomberg Business News