Safaricom’s ‘Crazy Profits’ In A Nutshell

Safaricom PLC announced its 1H22 results recording a 12.1 percent y-o-y increase in profit after tax to 37.0 billion shillings anchored by 45.8 percent y-o-y growth in M-Pesa revenue to 52.3 billion shillings.

M-Pesa’s performance came on the back of the lifting of the waiver of charges on transactions below 1,000 shillings and was further supported by the economic recovery.

EBIT was up 28.8 percent y-o-y to 57.9 billion shillings. Net finance cost notably jumped 12.6x to stand at 3.0 billion shillings on account of new debt to fund Ethiopia’s investment.

Service revenue was up 16.9 percent y-o-y to 138.4 billion shillings mainly supported by the 45.8 percent y-o-y growth in M-Pesa revenue to 52.3 billion shillings.

Voice revenue grew by 3.2 percent y-o-y to 41.5 billion shillings while SMS revenue was down 18.3 percent y-o-y to 5.9 billion shillings.

Mobile data revenue increased 6.3 percent y-o-y to stand at 23.6 billion shillings. Voice revenue contribution to service revenue declined to 29.9 percent compared to 1H21’s 33.9 percent.

Mpesa revenue contribution stood at 37.8 percent compared to 1H21’s 30.3 percent while mobile data revenue contribution stood at 17.1 percent compared to 1H21’s 18.8 percent.

Overall average unit per unit increased by 7.0 percent y-o-y to 711.67 shillings mainly supported by 31.3 percent y-o-y growth in M-Pesa ARPU to 300.71 shillings.

The number of chargeable transactions per one month active user stood at 18.06, up 91.9 percent y-o-y compared to 9.41 transactions in 1H21.

Mobile data average revenue per unit was up 7.9 percent y-o-y to 198.32 shillings, with one month of active mobile data subscribers increasing by 5.0 percent y-o-y to 24.05 million. Voice ARPU was down 2.9 percent y-o-y to 247.60 shillings.

At the same time, earnings before interest, taxes, depreciation, and amortization (EBITDA) margin improved 180 bps y-o-y to stand at 52.9 percent following a 110 bps decline in operating costs as a percentage of total revenue to 16.0 percent.

EBIT margin improved 330 bps y-o-y to 39.6 percent. The company registered a net finance cost of 3.0 billion shillings compared to 236.3 million shillings in 1H21 following an increase in borrowings from 14.8 billion shillings in FY21 to 77.0 billion shillings in 1H22.

Out of the 77.0 billion shillings borrowings, 43.0 billion shillings were attributed to Ethiopia’s investment roll-out. Ethiopia investment CAPEX was guided at USD 1.5-2.0 BN over the next 5 years, with year 1 funding (including license payment) to stand at USD 600 million.

Management’s EBIT guidance including Safaricom Ethiopia stood at KES 97-100 BN, while CAPEX guidance including Safaricom Ethiopia stood at KES 70-73 BN.

Management further guided EBITDA break-even at year 4 of operations, with a mobile money license yet to be awarded. The company expects to launch Ethiopia operations in 2022.

Safaricom is currently trading at a P/E multiple of 22.1x and a P/B multiple of 11.8x. Its ROE stands at 53.3 percent and ROA stands at 21.8 percent.