Safaricom investors took another blow after local stockbroker Sterling Capital downgraded the stock ahead of the telco’s full year earnings report scheduled for 9th May 2018.
According to Sterling Capital analysts, Safaricom shares have come too far too fast over the recent months, and the stock is due for a correction.
“We are UNDERWEIGHT on SCOM with a fair value estimate of KES.27.15 a 17.9% downside from the current market price (KES.32 4th April 2018). We do not believe that the current market price is a fair reflection of business value and mid-term earnings potential {……..} our valuation estimate is largely based on declining market share and resulting modest growth in voice and messaging service revenues.” Sterling noted in a research note sent to investors.
Sterling analysts see the telco “facing challenges in growing some service revenue lines particularly voice calls and messaging where price competition and relatively low growth and change in usage patterns has resulted in 13% decline over the last 3 years.”
The research cites growing customer price sensitivity on voice calls, the emergence of Over The Top services such as WhatsApp, Skype and Facebook Messenger which offer voice, video call and messaging services with regards to increased smart phone penetration in the country.
While they see huge growth opportunity with respect to M-Pesa and data business, the analysts say the recently launched mobile money interoperability could trigger further price competition in the mobile money business and negatively impact Safaricom’s service revenues.
The analysts further note that Safaricom’s market share is under threat citing the recent report from Communications Authority which indicates that Airtel recorded a massive 1.2 million increase (20.7%) in subscribers in the three months to December 2017, a period when opposition NASA launched a boycott of products from Safaricom accusing them of working with Jubilee Govt.
On Masoko
“We view SCOM’s entry into E-Commerce in H1 2018 as both a revenue diversification and M-Pesa revenue growth strategy. However, we believe that it is too soon to estimate the business performance and contribution of Masoko to SCOM’s overall revenues.”
Bottom line
Sterling Capital is the latest of a growing handful of analysts including Citi questioning Safaricom’s full year 2018 earnings guidance, but several other analysts are still stepping up to defend the stock which touched an all time high of Sh 32.75 in March.
