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February 18, 2019

Why this could be the best time to buy Safaricom

Safaricom house./FILE
Safaricom house./FILE

Safaricom is the big beast at the Nairobi Securities Exchange carrying a market capitalisation of Sh 1.021 trillion which represents 42.63% of the value of the entire exchange. Safaricom has served up a mouth-watering +38.22% total return in 2017, which is close to twice the return of the Nairobi All Share in 2017. These raw numbers confirm the importance and centrality of last weeks earnings release to Kenya Inc. Mr. Collymore who has presided over a miraculous +420% share price appreciation (that is excluding the very juicy dividends that shareholders having received) during his tenure, a performance that has only been bettered by the likes of Apple, Amazon and Ali Baba.

Safaricom under Bob Collymore, exists in the very top percentile of world-wide performance and consequently last week's earnings resonates world-wide. The value of Safaricom is much more than the share price performance. KPMG estimates that the total value Safaricom created for Kenyan society in FY17 was Sh486 billion around 10 times greater than the financial profit the company made in the same year. It produced a plain exponential return.

Safaricom reported a +12.0% shift higher with revenues clocked Sh109.73 billion. Customer numbers (the demographic dividend) grew +10.8% to 29.5 million. Net income expanded +9.5% to Sh26.2 billion and if we exclude a one off positive adjustment from the previous set of results, H1 net income grew +21.4%. Voice revenue grew +3.6% to Sh47.35 billion. Nearly every year for as long as i can remember, folks have been keen to pronounce the last rites on voice but year in year out, Safaricom has confounded the naysayers. Voice at +3.6% is counterintuitively off the charts. SMS revenue clocked a +3.4% increase to Sh8.92 billion. I recall Bob telling me a few years ago, how he was increasing the spike limit of the SMS platform by a factor of 10, and I thought to myself why on earth is he doing that. WhatsApp was lifting off just about that time. Today, when the betting companies blast via SMS, they utilise 100% of that spike capacity increase. Safaricom has proven skillful at maximising yield, really skillful.

Lets now turn to the more ''Go-Go'' trajectories. H1 mobile data revenue accelerated +31% to Sh17.55 billion. The average per capita mobile data consumption accelerated +66% and this confirms Kenya Inc is surfing the new c21st information superhighway, something Ali Baba's Jack Ma also alerted us to when he visited. He was asked about our infrastructure deficit and he replied ''But the most important infrastructure in the c21st is the internet and yours is fast!'' Safaricom have invested heavily in building out this c21st information highway, it represents the democratisation of data and Safaricom has given every Kenyan an entry ticket and not any old entry ticket but a Ferrari to this new c21st of ours. Calls for the boycott of Safaricom is ''kindergarten'' economics and will surely tip opposition strongholds into economic recession.

The ubiquitous Mpesa platform grew H1 revenue +16.2% to Sh30.05 billion. Higher frequency data confirms a slowdown in the velocity of mobile money since August and I have to believe that within this first half revenue narrative is a story of two halves with the 2nd half materially slower than the first. Mpesa continues to expand its platform capabilities and is deeply embedded in the economic ecosystem.

The chairman Nicholas Ng’ang’a spoke of Safaricom casting its eyes beyond our borders. Shareholders, in my view, have not baked this news into the share price. Mpesa, for example, surely, can be inserted into many countries on this continent.

Safaricom also launched their Msoko e-commerce platform. E-commerce has exploded. Its made Jeff Bezos of Amazon the richest man on the planet and Jack Ma cannot be far behind. E-commerce is going to be a very big thing and Safaricom have all the levers with which to secure a leadership position in this space. Their Mpesa agents can double up as delivery points, for example.

Any share price softness is an opportunity for investors to load the boat for the next leg higher.

Stanley Druckenmiller said ''The way to build superior long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig''

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