Safaricom, Kenya’s largest mobile operator, is facing increased regulatory risk which may affect its revenue stream according to analysts at Citi. One of the major threats to the company is the National Payment Strategy by the Central Bank of Kenya (CBK).
The Central Bank is working to improve the National Payment System which includes mobile money services like Mpesa. Some of the proposals by CBK are Fast-tracking interoperability between various payment systems. A report by Citi Research says that “CBK’s drive to make the National Payment System more collaborative/ interoperable may be seen by investors as a risk to M-Pesa.”
The telecommunications company is expected to record lower Mpesa revenue due to the updated fee structure which came into effect on 1st January 2021. Safaricom cut the transaction fee for low-value transfers by between 45% and 20%.
Citi analysts expect a 9% decline in Mpesa revenue at the end of the financial year 2021 due to the changes in transaction fees. The researchers also revised down fixed data revenue forecast.
“Safaricom also intends to bid for new telecom license in Ethiopia; should the bid be successful the cost of roll out, which tends to be front-end loaded, may have a negative impact on earnings in short-to-medium term,” said Citi in a research report.
Due to the uncertainty outlook on Safaricom’s revenues and net earnings, Citi has downgrade the company’s stock from a “Buy” recommendation to “Neutral”. Nonetheless, Citi Research has revised Safaricom’s target price to KSh35, up from the previous target price of KSh 33.1.
On Friday, Safaricom Plc closed at 35.50, -4.05% below its all time high of 37.00 which was recorded on Jan 26, 2021.
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Kenya’s Central Bank Gears Up For Open Banking in New 5-Year Strategy
Citi Projects Safaricom’s Net earnings to Hit KSh78.7 Billion in 2023
