M-pesa The Jewel in the Safaricom Crown

In Summary

• Safaricom reported a 7% increase in FY Service Revenue which clocked 240.30b.

Safaricom house. FILE
Safaricom house. FILE

Safaricom reported FY Earnings last Friday. The centrality of Safaricom in the lives of Kenyans and to the Nairobi Securities Exchange cannot be gainsaid. Safaricom represents around 47.9 % of the NSE total value of $23.3 billion [Mihr Thakar]. Bob Collymore has presided over a more than 400% increase in the share price during his tenure and if you cared to roll in the dividend payments over that period, the return is juiced further. The Total Return of the share price over the period of his tenure ranks in the top percentile worldwide. This Year the share price is +31% [only 9 percentage points behind Bitcoin which has flown off the charts in 2019 and is +40%]. Now conversely, if you stripped Safaricom out of the Nairobi Securities Exchange Indices, the performance would be woeful. Therefore, the Earnings Release is a very big deal.

Safaricom reported a 7% increase in FY Service Revenue which clocked 240.30b. Voice remains the single biggest revenue line item 95.94b and expanded +0.3% [Prices -10% Year on Year]. Voice was pronounced dead many years ago but for Safaricom, the Demographic Dividend has underpinned Voice. Safaricom added 2.3 million customers in the Full Year +58% compared to the previous year. For Bashir and Bouteflika the Youthquake was a Terminator, for Safaricom it is a rising tide. This remains a mature business but Safaricom have proven skilled at working the angles. SMS Revenue declined -1.3% to 17.5b. Full Year Mobile Data Revenue grew +6.4% to 38.69b. During this reporting period, the average rate per megabyte reduced by 42%.

Safaricom absorbed the GOK related increases and turbo-charged consumption. This is exactly the correct strategy. I recall a conversation about the Take-Up of Smart Phones a number of years ago and Bob Collymore told me then one of the issues is that if you have not experienced a fast internet, you really don't know what you are missing. Millions of Kenyans are now hooked to the 21st century and information Superhighway and its very difficult to dump a Ferrari for a Pro Box once you have driven the Ferrari. This Curve will turn ''hockey stick'' make no mistake about that. The real Earnings Outlier was Mpesa. Full Year Mpesa Revenue surged +19.2% to reach 74.99b. In November of last year, I wrote this in the Star 'Mpesa revenue surged +18.2% to register 35.52b and looks like its on the cusp of a hockey stick like breakout'.

Safaricom have tweaked the Mpesa ecosystem with good effect. They have made the Mpesa garden richer [the average user is transacting 12 times a month] and have increased retention and circulation in the ecosystem. This is a very big deal. Safaricom: ''The growth in MPESA has been driven by an increased number of users, higher velocity of funds within the ecosystem, and adoption of new use cases. MPESA now accounts for 31.2% of service revenue'' Mpesa contributed 75% of Safaricom's Year on Year Growth.

Bob Collymore told the Financial Times's Tom Wilson, "If you strip out Mpesa’s performance you will see that our underlying growth as a telco is only about 2.4 per cent.” Mpesa is the Jewel in the Safaricom Crown and has ''blitz-scaled'' [of course, I think Mobile Data will also become as valuable a Jewel] and Safaricom's premium is a direct consequence of the value being placed on this Earnings curve. Safaricom have continued to fine-tune the Mpesa eco-system under Lapoiyit to good effect with the latest innovation Fuliza, "the worlds first contextual mobile money overdraft facility'' going great Guns and providing further confirmation the Mpesa ''Platform Economy'' is a part of the genre of Platform Economies like UBER and the like.

Safaricom predicted that within three years its pioneering digital payments business Mpesa will generate more revenue than all other parts of the business combined [FT].  Bloomberg reported Vodacom and Safaricom plan to take over the intellectual property rights for M-Pesa, the main mobile-money product, from Vodafone Group Plc, Vodacom’s parent, and roll out the service to other African nations.

If Safaricom can replicate the ubiquity of M-pesa in other markets, we will have to steepen the Earnings Curve further.  In Ethiopia, Safaricom is already providing state-owned monopoly Ethiopia Telecommunications Corp. with fiber connectivity, call termination and airtime advance for customers, he said, and the partnership has the potential to be expanded.“We are looking at a broader relationship with EthioTel,” he said, without giving details. “No agreements have been signed yet, but we are hopeful about signing something this year.”

Given the importance of M-pesa, it “points to someone who really understands the fintech business” as a possible successor Boby Collymore told Tom Wilson.. Allow me to also mention the Dividend Pay Out of 1.25 +13.636% and a Special dividend per share of 0.62. The Balance Sheet is seriously ''bullet-proof'' Interestingly, Bob was asked about Huawei and said Safaricom's policy is not going to be driven by President Trump's Foreign Policy.