Standard Bank Group (SBG) Securities has issued a 'buy' recommendation on Safaricom shares in the wake of high returns amid entry plans for Ethiopia.
On Monday, Safaricom moved 2.7 million shares valued at Sh85 million at between Sh31.20 and Sh32.30, accounting for 11.60 per cent of the day’s traded value.
Standard Bank Group Securities has projected Sh37 per share price on the telco's shares at the Nairobi Securities Exchange(NSE).
“Safaricom's share price has risen 15 per cent over the past three months driven by news of its possible entry into Ethiopia and better than expected half one 2020 results,”research analyst Kuria Kamau said in Nairobi on Monday.
“Looking forward , we expect stronger growth in the second half of 2020 on account of lapping a challenging half two 2019 when excise on telco products was increased from 10 per cent to 15 per cent,” he added.
These includes 15 per cent for fixed data and excise on M-pesa which was increased from 10 per cent to 12 per cent.
Safaricom made a provision in financial year 2019 due to confusion over the effective data of the higher taxes.
Earnings per share are expected to grow 18 per cent in financial year 2020, mostly due to a seven per cent rise in service revenue.
This was at five per cent in half one 2020 and an improvement in earnings before interest and taxes margin to 39.2 per cent (was 38.8 per cent in half one 2020).
The giant telco has been pushing for an entry in Ethiopia it last year announced plans to bid for one of two Ethiopian telecoms licenses this year, in partnership with South Africa’s Vodacom.
The firm's service revenue is expected to grow at a three year Compound Annual Rate of Growth(CARG) of seven per cent driven by M-Pesa (three-year CAGR of 13 per cent) mobile data (three-year CAGR of 14 per cent) and fixed data (three-year CAGR of 13 per cent).
“In our opinion , the growth in Mpesa and mobile data revenue will mostly be because of higher average revenue per user increased usage while the growth in fixed data is likely to be as a result of more active subscribers,” SBG notes in its report.
In the financial year 2020, service revenue is expected to grow seven per cent due to a 16 per cent rise in Mpesa revenues , a 13 per cent increase in mobile data and 19 per cent growth in fixed data.
