Bob is right, Kenya Inc needs five Safaricoms
This past week Safaricom released its first-half earnings. The centrality of Safaricom to the Nairobi Securities Exchange is shown when you compare the telco’s market capitalisation of Sh851.39 billion ($8.429 billion) to the market cap of the entire stock exchange at Sh2.050 trillion ($20.297 billion). Safaricom constitutes 41.52 per cent of the total value of the stock exchange. The markets emit a very pure signal and this is the first signal to note. CEO Bob Collymore has presided over a golden age for shareholders. The total return for shareholders during his tenure clocks +711 per cent. That return surely ranks in the top percentile world-wide. This is the second signal to note.
Collymore spoke of how Kenya Inc needs to produce the equivalent of five Safaricoms a year. He has a point. Safaricom on Tuesday last week issued its Sustainability Report which measures the ‘’True Value’’ of the company’s business, and it calculates that the total value Safaricom created for Kenyan Society in full-year 2016 was about Sh413.86 billion (10.9 times greater than the financial profit the company made during the same period).
During the half-year period to September 30, revenue topped Sh100billion to clock Sh102.09 billion, profit before tax was +30.6 per cent, while cash and cash equivalents surged +126 per cent to Sh43.02 billion. I once described Safaricom as a cash machine and a +126 per cent surge in cash and cash equivalents confirmed that. Non-voice revenue (53.4 per cent of total earnings) overtook voice revenue (46.6 per cent of total revenue) for the first time. Voice eked out a +1.1 per cent gain.
Collymore said: ‘’I’ve been saying for four years voice is not dead. We’ve got a million people added to the population every year. We haven’t moved into the bundled voice thing that many Europeans did and wished they hadn’t (You could argue that voice has confounded expectations exactly because of the demographic dividend).”
M-Pesa, which is ubiquitous and has helped Kenya Inc re-frame itself as the hot-bed of mobile money and financial inclusion, saw revenues surge +33.7 per cent to Sh25.9 billion. Some of this surge was juiced by the betting phenomenon, I am sure but the bottom-line is that M-Pesa is still in a parabolic and GO-GO growth phase. Transaction volumes have grown 27 per cent on a compounded annual growth rate basis over five years, and clocked an eye-popping Sh3.226 trillion for this six-month reporting period. At some point, Safaricom might consider spinning off M-Pesa via a separate listing.
The fastest growing slice of Safaricom’s revenues remains mobile data, which accelerated +46.3 per cent to Sh13.4 billion. Today, there are more than 10 million smartphones on Safaricom’s network. Data usage per customer per month grew +44 per cent to 231MBs year-on-year. The mobile data curve is entirely correlated to the recent arrival of the information century. The speed of the arrival is just breathtaking.
Interestingly when I asked Collymore whether he was worried by the competition, he said: “We are always scanning the horizon. The competition does not keep me awake. It’s new, emerging technologies like WhatsApp that keep me awake.’’ By the way WhatsApp did not disrupt Safaricom. What happened is we all started sending packets and packets of data across WhatsApp, juicing the mobile data curve. SMS revenue registered a +8.1 per cent gain.
Safaricom is an outlier (in statistics, an outlier is an observation point that is distant from other observations). It’s centrality to the securities exchange and Kenya Inc cannot be gainsaid. From the early days of the ‘Simu ya Jamii’ through to the Sh5 scratchcard, through a proposed rollout of up to 1,000 4G base stations over the next few months, they have transformed lives, connected us to each other, helped Kenyans meet their daily needs (M-Pesa) and to the 21st century.
Today, Safaricom is on the radar of every international investor. I cannot think of any other sub-Saharan Africa equity which occupies the same degree of mind share.
