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Safaricom Plc 1H21 Earnings Note

9 November 2020

Safaricom Plc (NSE: SCOM) announced a 6.1% y/y drop in 1H21 Earnings per Share (EPS) to KES Key Statistics
0.83 in line with our expected EPS of KES 0.82. The slow performance was primarily Recommendation HOLD
attributed to 14.5% y/y decline in M-Pesa revenue (-14.8% y/y expected), faster-than-expected Target Price 31.34
6.5% y/y decline in voice revenue (-3.1% y/y expected), positive (14.1% y/y) mobile data revenue Market Price 31.30
growth as fixed data surprised on the downside (-0.2% y/y). Consequently, service revenue Potential Upside 0.1%
fell in line with our expectations (-5.3% y/y). Efficiencies were the major driver of bottom-line Bloomberg Code SAFCOM.KN
growth with operating costs down 10.6% y/y steadying operating profit (EBIT) at -3.1% y/y. Reuters Code SCOM.NR
With performance in line with our projections, we maintain our HOLD rating at a fair value NSE Code SCOM
estimate of KES 31.34. Free Float 25.1%
Price change YTD -0.6%
Below are the key highlights of the results: 52 Week High - Low 33.50 - 20.10
Market Cap (USD Bn) 12.5
M-PESA revenue, -14.5% y/y to KES 35.9Bn P/E 17.5x
M-Pesa suffered revenue losses of KES 6.1Bn from the free transactions imposed at the Dividend Yield 4.5%
beginning of the financial year. Total value of M-PESA transactions rose significantly (32.9% y/y) Source: Genghis Research, Bloomberg & NSE
to KES 9.0Tn from KES 6.8Tn in 1H20 with volumes up 14.9% y/y to KES 5.1Bn. This, as expected,
implies customers took advantage of the free transactions on both peer-to-peer transfers and
200.0 35.0
M-Pesa-Bank transfers. A rising star under the new business channels is Fuliza, which
180.0 30.0
registered revenue growth of 60.7% y/y to KES 2.2Bn (KES 0.8Mn Safaricom share) from
160.0
disbursement of KES 149.4Bn (+33.1% y/y). This was above the combined revenues of KCB-M- 25.0
Pesa and M-Shwari (total KES 1.49Bn, KES 0.1Bn Safaricom share), although there is likelihood 140.0
120.0 20.0
of revenue cannibalization within the two segments. Overall, the impact of the free transfers
led to 23.5% y/y drop in 30-day active M-PESA average revenue per user (ARPU) to KES 229.1. 100.0 15.0
Penetration of active M-PESA users has steadily been increasing and is currently at 88.0% of Oct-19 Feb-20 Jun-20 Oct-20
Safaricom’s 30-day active customers compared to 87.0% as at end of March 2020. With the NSEASI SCOM
drop in revenues, M-PESA accounts for 30.3% of service revenue compared to 33.8% in 1H20.
Source: Genghis Research, Bloomberg & NSE

Mobile Data, +14.1% y/y to KES 22.2Bn

Mobile data revenue grew faster than expected driven by a 11.6% y/y and 3.4% y/y rise in 30-day
active customers to 22.9Mn and mobile data ARPU to KES 183.80, respectively. Additionally,
monthly average data MBs per user rose 16.6% to 1.4GBs from 1.2GBs in FY20. Supporting
mobile data is increase in 4G base stations by 1.7Mn y/y, with 4G coverage at 91% from 77% in
FY20. The aggressive roll-out of the 4G network coupled with its Lipa MdogoMdogo campaign
(an instalment financing program that allows customers acquire 4G devices for as little as KES
20 per day) will be key in pushing data access and usage. Mobile data revenue now accounts
for 18.8% of service revenue compared to 15.7% in 1H20.
Analyst:
Fixed Service revenue, -0.3% y/y to KES 4.5Bn
Fixed service revenue steadied at KES 4.5Bn despite expectations of robust growth amidst the
Gerald Muriuki
aggressive roll-out of the fibre network. Home customers (Fibre to the Home -FTTH) increased
gmuriuki@genghis-capital.com
to 119.1k from 97.7k in FY20 while business customers (Fibre to the Business -FTTB) rose to
Direct Line: +254 730 145 000
32.4k from 24.4k in FY20. The drop in FTTB ARPU (to KES 13,800 from KES 19,600) led to
Website: www.genghis-capital.com
revenue loss of KES 200Mn. On overall, total fixed data revenue was also dragged by the one-
off KES 500Mn in 1H20 for the National Police Service project. Fixed service revenue now
accounts for 3.8% of service revenue compared to 3.7% in 1H20.

1
Safaricom Plc 1H21 Earnings Note

9 November 2020

Voice & SMS:

Voice and SMS revenue were subdued, declining 6.5% y/y and 6.9% y/y, to KES 40.2Bn and KES 7.2Bn, respectively. 30-
day active customers for voice and SMS grew 7.6% y/y and 2.3% y/y though ARPU on the revenue streams declined 13.1%
y/y and 9.0% y/y, respectively, attributed to downward revisions in pricing and bundled product offerings. Voice and
SMS now account for 33.9% and 6.1% of service revenue, respectively, compared to 34.6% and 6.2%, respectively, in
1H20 and is expected to dwindle further with growth of the other revenue lines.

Our View:
Without much surprises from our 1H21 expectations, we maintain our HOLD rating on SCOM at a fair value estimate
of KES 31.34. Though the free transaction costs will be in place to the end of the year, the protracted resolution of the
pandemic increases the risks of longer than would be expected low transaction costs regime.

Expected vs Actual Income Statement Items (KES Bn)

60.0

50.0
45.0
43.2
41.4
40.2
40.0
35.7 35.9
32.7 33.1

30.0
M-Pesa Revenue Voice Revenue EBIT PAT

HY21 Expected HY21 Actual

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Safaricom Plc 1H21 Earnings Note

9 November 2020

Financial Summary
Income Statement 1H19 FY19 1H20 FY20 HY21 Y/Y
Voice Revenue 47.5 95.8 43.0 94.5 40.2 -6.5%
M-Pesa Revenue 35.5 75.0 42.0 84.5 35.9 -14.5%
SMS Revenue 9.7 19.6 7.7 17.2 7.2 -6.9%
Mobile Data Revenue 19.0 36.3 19.5 40.7 22.2 14.1%
Fixed Service Revenue 3.8 8.1 4.6 9.0 4.5 -0.3%
Other Service Revenue 2.5 5.0 3.4 5.5 3.8 10.0%
Total Service Revenue 118.1 239.8 120.1 251.2 113.8 -5.3%
Other Revenue 4.8 10.5 5.6 11.3 6.1 9.8%
Total Revenue 122.8 250.3 125.7 262.6 119.9 -4.6%
Direct & Construction costs 35.3 72.4 37.5 75.3 37.5 0.2%
Contribution Margin 87.6 177.9 88.3 187.3 82.4 -6.6%
Operating & Other costs 25.8 53.6 23.7 47.5 21.2 -10.6%
EBITDA 61.8 124.3 64.5 138.1 63.4 -1.8%
Depreciation & Amortization 17.6 35.3 18.1 36.6 18.4 1.6%
EBIT 44.2 89.0 46.4 101.5 45.0 -3.1%
PBT 45.6 91.2 47.5 105.8 44.7 -5.8%
Tax 14.5 28.7 16.1 32.1 11.7 -27.6%
PAT 31.2 62.5 31.4 73.6 33.1 5.4%
EPS 0.78 1.56 0.88 1.84 0.83 -6.1%
Balance Sheet 1H19 FY19 1H20 FY20 HY21 Y/Y
Non-current assets 139.7 142.5 144.0 164.4 178.0 23.6%
Inventory 2.1 1.8 2.0 1.9 3.9 98.4%
Receivables 20.6 18.1 20.3 17.2 23.3 14.7%
Cash and cash equivalents 36.7 20.0 23.3 26.8 15.8 -32.2%
Other assets 2.7 10.0 21.6 3.0 6.6 -69.6%
Total Assets 201.7 192.5 211.2 213.2 227.6 7.8%
Contract liabilities 10.0 9.3 9.9 9.4 9.4 -5.3%
Payables 38.0 28.7 33.8 29.9 40.8 20.7%
Other liabilities & equity 153.7 154.5 167.5 173.9 177.4 5.9%
Total Liabilities & Equity 201.7 192.5 211.2 213.2 227.6 7.8%
Key Ratios & Metrics 1H19 FY19 1H20 FY20 HY21 Y/Y
EPS 0.78 1.56 0.88 1.84 0.83 -6.1%
EPS Growth 19.0% 13.0% 12.9% 17.8% -6.1% -146.9%
Contribution margin (%) 71.3% 71.1% 70.9% 70.7% 67.9% -4.2%
EBITDA Margin 50.3% 49.7% 52.6% 52.6% 50.9% -3.3%
EBIT Margin 36.0% 35.5% 38.7% 38.7% 36.1% -6.6%
ROE 60.0% 46.6% 64.6% 51.2% 29.4% -54.5%
ROA 32.1% 34.7% 34.1% 36.3% 15.1% -55.8%
source: Genghis estimates & Company accounts

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Safaricom Plc 1H21 Earnings Note

9 November 2020

Research analyst certification:

The research analyst(s) primarily responsible for the preparation and content of all or any identified portion of this
research report hereby certifies that all of the views expressed herein accurately reflect their personal views. Each
research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the
view(s) expressed by that research analyst in this research report.

Disclosures:
This research report is for distribution only under such circumstances as may be permitted by applicable law. This research
report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient,
even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of
any securities, markets, reports or developments referred to in this research report. Neither GCL nor any of its directors,
officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact
or opinion in this research report or lack of care in this research reports preparation or publication, or any losses or
damages which may arise from the use of this research report.

Recommendations guide:
Buy (B): The stock’s total return* is expected to be more than 15% (or more, depending on the perceived risk) over the next
12 months from date of report publication.
Hold (H): The stock’s total return* is expected to be in the range of -15% to +14% over the next 12 months from the date of
report publication.
Sell (S): The stock’s total return* is expected to be less than -15% over the next 12 months from the date of report publication.
Speculative Buy: GCL may issue a “Speculative Buy” when the Research Analyst covering the company is of the view that the
risk/return tradeoff is somewhat less compelling than that of a BUY rating. These companies tend to have very high upside
potential, but also a high degree of risk or uncertainty with regard to future financial results or economic conditions.

4
Safaricom Plc 1H21 Earnings Note

9 November 2020

Key Contacts: Research Key Contacts: Equities Trading

Churchill Ogutu David Micheke
cogutu@genghis-capital.com dmicheke@genghis-capital.com

Gerald Muriuki Kevin Ngige

gmuriuki@genghis-capital.com kngige@genghis-capital.com

Direct Line: +254 730 145 000

Website: www.genghis-capital.com
Twitter handle: @genghiscapital

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