Cost cuts to push Safaricom’s EBITDA growth to KES 115.16Bn  – Analysts

Safaricom Limited (NSE: SCOM) plans to release its financial results for the 6 months to September 2017 (1H18) on Friday.

Market Analysts from Genghis Capital expect a robust 26.8 percent EPS growth to KES 0.65 in 1H18.

Key pointers to strong 1H18 numbers are as follows: 12 percent service revenue growth to KES 109.8Bn; 13.4 percent EBITDA growth to KES 53.8Bn; and a 22.4 percent EBIT to KES 38.1Bn.

“Service revenue will be driven by the Mpesa business which is the telcos bread and butter. We expect Mpesa business to account for 30 percent of total revenues (1H18) implying a 30 percent y/y growth in 1H18 and a 16.1 percent 5-yr. CAGR growth over FY18-FY22,” they note.

Mobile data is projected to grow by 34.9 percent in 1H18 on the back of growth in mobile subscribers (11.4 percent y/y) and improvement in mobile data ARPU. Nonetheless, we expect slower voice revenue and SMS revenue growth in 1H18.

Read: Users Data to define who dominates the telco sector in Kenya 

We estimate Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of KES 115.16Bn in FY18F pegged on cost savings from:

1. i) Lower transmission costs
2. ii) Falling network operating cost which includes fuel cost and
   iii) lower IT operational costs.

Our FY18F EBIT of KES 79.03Bn is also ahead of management guidance (KES 71Bn-KES75Bn), driven by our anticipated stronger revenues (M-Pesa and Mobile Data) and an upward swing in EBITDA margins to 48.5% in FY18F.

We maintain our target price of KES 21.12.

“We believe investors are pricing in new growth frontiers which SCOM is considering including M-Pesa & Little Cabs across Africa and new products introduction (Masoko, an e-commerce platform).”

Last year, the telco company posted a 32.4 percent increase in net income to Kshs 23.93 Billion for the first half period ended September 2016 compared to Kshs 18.08 billion posted in a similar six month period ended September 2015.

Total revenue increased by 5 percent to Kshs 102 billion, largely attributed to service revenue which grew by 15.4 percent to Kshs 98 billion. Voice revenue increased by 1.1 percent to Kshs 45.7 billion and accounted for 53.2 percent of total revenues.

Source: Genghis Capital