Econet Wireless Zimbabwe

1 December 2023
Telecoms – Equity Research
US$ Earnings Update for the Half Year Ended 31 August 2023

1H24: Significant capex investment into network

Sub-economic tariffs continue to exert pressure on the business Market Data
The operating environment remained challenging for Econet as sub-economic tariffs amidst a
Report Date 1-Dec-23
depreciating local currency continued to threaten the long-term viability of the local telecoms sector.
Although the Regulator granted the sector a tariff adjustment of 50% during the period (in April), the Bloomberg Ticker ECO: ZH
sector’s operating costs grew by a larger margin owing to the inflationary environment. Rating BUY
Nevertheless, following years of under-investment, Econet spent 24% of its revenue towards capex
Current price US$ 0.08
during the period under review and leveraged its partnerships with major equipment vendors to
modernise 691 base station sites covering Harare and Bulawayo, thus improving performance, Target price US$ 0.22
capacity and coverage. The Group saw volumes growth of 24% and 25% for voice and data, Market Cap US$mn 217.92
respectively compared to the prior year period. Consequently, historical revenue increased 1,035%
Market Weight 12.91%
to ZWL$836.35bn from ZWL$73.71bn in 1H23. EBITDA grew 1,184% to ZWL$428.17bn from
ZWL$33.32bn in 1H23, with EBITDA margin rising from 45.2% to 51.19%. However, the Company Common Shares Outstanding mn 2,590.58
was unable to redeem its matured debentures during the period due to inability to secure foreign Freefloat 40%
currency via the RBZ’s foreign currency auction. Consequently, exchange losses from the USD-
Last Dividend declared -
denominated liabilities driven by the weakening local currency continued to have a negative impact
on the Group’s performance. The Group incurred exchange losses of ZWL$287bn, representing Dividend Yield (+1) 0.0%
34% of total revenue. Resultantly, the Group posted a loss before monetary adjustments in real PER (+1) 12.19
terms, but historical PAT was up 633% to ZWL$28.2bn. Econet closed the period with
EV/EBITDA (+1) 1.55
ZWL$94.67bn in cash against ZWL$362.66bn in debt. The Group did not declare an interim
dividend for the period in light of its ongoing capital expenditure program.

Foreign exchange losses expected to taper off as debentures are redeemed

Econet’s investment level of 24% of revenue during the period under review, up from a level of less 12m share price performance (US$) v. US$ Mcap
than 5% in previous years, demonstrates the Group’s commitment to modernizing its network
infrastructure. This increased investment level is expected to broaden and diversify the Group’s
service offering, improving capacity and coverage. In 1Q24, Econet successfully raised the 0.30
US$30.3mn required to redeem its debentures following a Rights Offer. Consequently, we expect
0.25
the foreign exchange losses that have plagued the Group for the past few years to taper off,
positively impacting profitability to FY24. According to the Postal, Regulatory Telecommunications 0.20
Authority of Zimbabwe (POTRAZ), Econet held 72% of market share in both mobile subscriptions
and internet & data traffic as at 30 June 2023. However, the regulator has also noted that voice and 0.15
data tariffs remain at discounts of 58% and 88%, respectively, to the region. These sub-economic
0.10
tariffs will likely continue to weigh down on the Group’s revenue generation to FY24.
For forecasts to remain relevant in the present inflationary environment, we have shifted to a US$ 0.05
based valuation of the business. We believe that revenue for Econet will close FY24 4% lower at
0.00
US$369.7mn as inflation continues to outpace tariff increases. Our view is that EBITDA margin will
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likely remain flat at 40% in FY24 with a forecasted net income of US$17.9mn.
Oversold at current levels, update to BUY recommendation
We estimate that Econet trades on a P/E (+1) multiple of 12.19x, compared to its peers at an
average of 12.23x and EV/EBITDA (+1) of 1.55x, compared to peers at an average of 4.75x. Despite Econet US$ Price ZSE Mcap Indexed
a fairly valued P/E multiple, using a combined weighted DCF and multiples valuation we have
arrived at a target price of $0.22, suggesting an upside of 163.03%. Notwithstanding significant
headwinds, the company seems oversold at current levels. We therefore place a BUY
recommendation on the stock.

Net Net
Revenue EBITDA DPS EBITDA EV Div
Income EPS ($) Debt EV/Sales EV/EBITDA P/E
(US$mn) (US$mn) ($) Margin ($mn) yield
(US$mn) ($mn)

2023A 383.7 150.2 -16.2 -0.01 0.00 39.2% 217.5 -0.5 0.57 1.45 -13.42 0.0%
2024E 369.7 147.9 17.9 0.01 0.00 40.0% 229.3 11.4 0.62 1.55 12.19 0.0%
2025E 380.8 152.3 65.6 0.03 0.00 40.0% 229.5 11.5 0.60 1.51 3.32 0.0%
2026E 392.3 156.9 67.0 0.03 0.01 40.0% 228.8 10.9 0.58 1.46 3.25 6.1%
2027E 404.2 161.7 70.0 0.03 0.01 40.0% 227.8 9.9 0.56 1.41 3.11 6.4%
2028E 416.4 166.6 73.0 0.03 0.01 40.0% 226.4 8.4 0.54 1.36 2.99 6.7%
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Certification
The analyst(s) who prepared this research report hereby certifies(y) that: (i) all of the views and opinions expressed in this research
report accurately reflect the research analyst’s(s) personal views about the subject investment(s) and issuer(s) and (ii) no part of
the analyst’s(s) compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed
by the analyst(s) in this research report.

Ratings Definition
Buy - Expected 1 year return is at least 20%

Hold - Expected 1 year return of between -10% and 20%

Sell - Expected 1 year return of -10% and below

Disclaimer
This document has been prepared by IH Securities to provide background information about the securities and (or) markets
mentioned herein, the forecasts, opinions and expectations are entirely those of IH Securities. This document was prepared with
the utmost due care and consideration for accuracy and factual information; the forecasts, opinions and expectations are deemed
to be fair and reasonable. However there can be no assurance that future results or events will be consistent with any such
forecasts, opinions and expectations. Therefore the authors will not incur any liability for any loss arising from any use of this
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