Thursday, January 21, 2010

Morgan Stanley predicts rosy future for Safaricom

Source: http://www.standardmedia.co.ke/InsidePage.php?id=2000001135&catid=4&a=1

A global financial services firm is forecasting a rosy future for mobile services provider Safaricom over the next two years.

It has also ranked Safaricom stock as "overweight", a rating equivalent to a recommendation to investors to buy the share at this time, because of its value in relation to other stocks.

Morgan Stanley’s analysis is based on several planks, including the easing of price competition in the voice market, and the huge, and growing, demand for money transfer and Internet services in Kenya.

Based on these alone, Morgan Stanley forecast group revenue growth of 22 per cent for Safaricom this year, and a further 16 per cent in 2011, up from its previous estimate of 12 per cent, and 10 per cent, respectively.

“We forecast Safaricom will surpass one million mobile broadband subscribers by 2012," says the report.

The analysis, dated January 13, was not commissioned by Safaricom, but was part of Morgan Stanley’s latest outlook on leading telecommunication firms worldwide.

According to the analysis, Safaricom shares are likely to trade within a band of Sh4.80 to Sh6.40 as new revenue streams initiated by the company begin to have an impact.

While the higher share price of Sh6.40 is only likely during a bull run at the stock market, Safaricom accounts for at least 70 per cent of daily turnover at the Nairobi Stock Exchange (NSE).

As such, other equity counters tend to view any appreciation of its share price positively, as happened last week, when the share shot past Sh5, sparking recoveries in other key stocks.

The NSE is expected to recover significantly this year, buoyed by the influx foreign investors, a fall in interest rates, and optimism about an economic upturn.

"We could witness a sustained price rally in equities across all counters until May, when companies begin to release their half year results," Mr Fred Mweni, Managing Director of Tsavo Securities, told the Standard, on Sunday.

"Safaricom remains one of the top picks this year, and most global clients are being advised to buy it," he added.

Of particular interest, Morgan Stanley says, M-Pesa could account for up to 12 per cent of revenue for Safaricom by 2011.

"We also think it is interesting that Safaricom is looking at developing a full mobile banking solution, implying more revenue upside to our forecasts," notes Morgan Stanley.

But the investment firm has also drawn up alternative scenarios that could change its forecasts. Among them is Safaricom retaining its dominance, but losing some ground to the competition, with revenues staying flat over the next five years.

In the case of a renewed and extended bear run at the stock market, inflation would mean that lower tariffs would not be offset by sufficiently higher usage, once food prices rise.

In such a scenario, average revenues per user (ARPU) would drop by six per cent this year, and rise by just two per cent in 2011.

Included in the potential risks, are the uncertain political climate created by the divided coalition Government, and the search for a new constitution.

Others are higher selling and marketing costs, due to increased competition in the mobile phone services industry.

Last year, Safaricom paid its first dividend since its listing at the NSE. The report notes that as the firm’s dividend policy becomes clearer, its shares will be more attractive.

Morgan Stanley research estimates that Safaricom can pay a higher dividend in future, even if it has to raise capex (capital expenditure) to support further revenue growth.

The assumptions in this ratings assume that Safaricom retains its 80 per cent market share, and raises its earnings before interest, taxes, depreciation and amortisation (EBITDA) above 50 per cent. This is as new competition proves ineffective.

But the game changer for Safaricom is M-Pesa, the money transfer service, with a fast-growing base, that the report notes "is gaining critical base".

The forecast is for 70 per cent of the firm’s subscribers to be registered M-Pesa users by 2013, an enviable base should the firm opt for full mobile banking.

On average, M-Pesa users send, or receive, money three times a month, with transactions hitting Sh23 billion in September last year, says the report.

Average transaction per user would increase to at least four times a month by 2011, which will in term boost ARPU.

And with the number of M-Pesa subscribers fast approaching a figure equivalent to the total bank accounts in the country, Safaricom is now in prime position to offer a full banking product.

The strengths of M-Pesa — it allows users to deposit, withdraw and transfer cash, pay remittances and bills, and is a safe haven for their money — makes it a strong brand that would give established banks a run for their money, notes the report.

Mobile phone market set for greater heights

Source: http://www.standardmedia.co.ke/InsidePage.php?id=2000001228&catid=457&a=1

East African mobile communication markets are poised for more growth driven by cheaper handsets and network investments, a new study says.

An analysis from Frost & Sullivan, a global growth consulting company says Kenya, Tanzania, Uganda and Rwanda markets earned revenues of Sh197 billion ($2.62 billion) in 2008, and estimates this to reach Sh679 billion ($9.03 billion) in 2015.

Kenya enjoyed the highest number of active subscribers and revenues among the four countries. Tanzania, Uganda and Rwanda are, however, likely to witness significant growth over the next seven years due to increasing network investments, continuing product innovation and reduced handset costs, according to the US firm.

Technologies covered in the just released markets study are code division multiple access (CDMA), global system for mobile communications (GSM), general packet radio service (GPRS), high-speed downlink packet access (HSDPA) and wideband code division multiple access (WCDMA).

"The key drivers in these markets include strong gross domestic product (GDP) growth rates, increasing demand for mobile money transfer services and declining handset costs," says Frost & Sullivan Research Analyst Jiaqi Sun.

East African consumers, he adds, are spending more on mobile communications due to the low fixed-line network coverage, underdeveloped banking systems and limited availability of inexpensive handsets. Sun says there are 37.6 million mobile subscribers in East Africa, at a penetration rate of 30.8 per cent. The number of subscribers, according to the analysis, is expected to reach 99.5 million in 2015, at a compound annual growth rate of 14.9 per cent.

"The undersea cables are anticipated to reduce the cost of telecommunications by 60 per cent over the next seven years. This will boost demand for mobile Internet access," Sun says in the Analysis.

However, there are challenges faced by the market participants such as high tax rates on mobile services, lack of network rollout in rural areas and low demand for data services.

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