Telecommunication giant Safaricom on Monday announced that, for a period of 90 days starting on 17th March, it will not charge transfer fees for person to person transactions below KSh1,000.
The declaration rattled some investors who are keen on the firm’s revenues. Approximately 33% of Safaricom’s revenue is generated from Mpesa transactions based on last year’s financial report. Additionally, the Communications Authority’s quarterly report shows that the average value of person to person MPesa transactions per active M-pesa user, per month, is around Ksh9,000.
An analysis by Citi Research shows that an average Mpesa user makes 13 transactions every month, at an average value of KSh600 per transaction. This figure falls below the KSh1000 limit and therefore will attract no charges. It is therefore justified to assume that MPesa revenue will decline during the waiver period.
Citi Analysts say, “If we were to assume zero P2P revenue in 1Q21, our FY21F revenue would decline by 3.2%. Considering P2P transaction are high margin ones, most of that would be recycling through to earnings (up to 12% FY21)”
Besides the transactions fee waiver, Safaricom increased the daily transactions limit from Ksh 140,000 to Ksh 300,000, grew the wallet size from KSh70,000 to KSh300,000 and revised upward SMEs transaction limits to KSh150,000 from KSh70,000.
According to Citi, the move is expected to bear fruits in the future by; growing the number of active Mpesa users and overall chargeable transactions, improving Mpesa’s competitiveness in high-value transactions, and supporting growth in business to business transactions.
Citi analysts also expect the short term drop in Mpesa revenue to be offset by a sharp increase in data revenue. As more people work from home and schools remain closed, mobile internet usage is expected to rise fast. Citi researchers say, “[Safaricom’s] decision in 2019 to accelerate 4G rollout and recent fibre investments we think should support an increase in demand, even in the event of supply chain disruptions…”
Due to the optimistic outlook by Citi analysts, they have issued a strong buy recommendation on the shares of the telecommunication giant, Safaricom. Their target price is KSh35, a 43 per cent gain from Monday’s (16th March) closing price of KSh24.45 per share.