SBG Securities expects growth in Safaricom’s service revenues, EBIT and earnings per share owing to digitization and business process engineering. Moreover, the Stanbic Stockbroker maintains a buy recommendation for Safaricom shares as the stock price continues to soar. Safaricom’s share price recently hit Ksh 33.30, nearly touching its all-time high price of Ksh 33.50.
A company update estimates faster growth in the second half of 2020 as compared to H2 2019. In the latter period, confusion of exact dates of implementation of new excise duty led to provisioning, which affected share prices.
Higher M-Pesa, Data Revenues
SBGS expects earnings per share for Safaricom to grow by 18%, as the service revenue jumps by 7%. The broker expects service revenues from M-Pesa to grow by 13% compounded rate for the next three years.
Such estimates stem from higher average revenue per user (ARPU) due to higher usage. Estimates for three-year growth for mobile and fixed data stand at 14% and 13% respectively. The growth in data stems from increased subscriber numbers.
“We expect service revenue to grow at a three year compounded annual growth rate (CAGR) of 7% driven by M-Pesa (CAGR of 13%), Mobile data (three-year CAGR of 14%) and fixed data (Three-year CAGR of 13%),” reads a company update. “In FY20e, we expect service revenue to grow by 7% due to a 16% rise in M-Pesa revenue, a 13% increase in mobile data and a 19% growth in fixed data.”
SBG Securities predict Safaricom’s EBIT margins to grow by 39%, 42%, and 44% in the next three years. Similarly, the firm estimates strong free cash flow generation at 3 year CAGR 15%.
While news of Safaricom’s planned entry into Ethiopia drove the shares in the past three months, SBG Securities doubts that the effects will last through the next three years. Nevertheless, the firm expects Safaricom will receive a license in Ethiopia, which will potentially increase Safaricom’s long term earnings.