Higher call tariffs seen lifting Safaricom’s full-year profits

Safaricom’s decision to raise its calling charges in October 2011 is expected to lift its full-year profits that will be unveiled Tuesday morning by double digits, analysts say.

Experts at Standard Investment Bank (SIB) and Kestrel Capital expect the profits to grow at a slower rate compared to the 94 per cent growth the operator returned in the first half ended September.

SIB expect a profit rise of between 42 and 45 per cent, which will push the net profit to Sh18.2 billion, and dividend of Sh0.30 up from last year’s Sh0.22.

This is based on the fact that Safaricom will be enjoying a full year based on the high tariffs, which covered half the 12 months to March last year, and improved performance on data and its popular money transfer service, M-Pesa.

From October 1, 2011, the company raised its on-net call rates from Sh3 per minute to Sh4, while the price of calls to other networks was raised briefly from Sh4 per minute to Sh5 per minute before being lowered to Sh4.


Kestrel Capital puts the earning per share at Sh0.41, up from last year’s Sh0.32, representing a growth of 29 per cent and expects the firm to maintain dividends at last year’s level before increasing to 50 per cent next year.

“We think Safaricom is in very good shape, especially supported by revenues from its financial services division (M-Pesa) as well as a strong recovery in voice revenue following a decision to increase calling rates in October 2011,” said Eric Musau, an analyst at SIB.

“Overall, we expect an extremely rewarding year for Safaricom in FY13.  Our EPS estimates for FY13 declining to Sh0.46 and dividend of 30 cents per share.” 

This outlook has seen Safaricom shares, one of the most traded stocks on the Nairobi Securities Exchange (NSE), double their value over the past year to Sh6.90, down 1.45 per cent over the past five days.

The share is now trading above its 2008 IPO price of Sh5 and near five year high buoyed by investors buying ahead of full-year results on Tuesday.

“People, especially high net worth investors, are positioning ahead of results,” said Eric Musau, an analyst at Standard Investment Bank.

Activity in the telecommunication counter pushed up the performance of the total market with the benchmark 20-Share Index rising to 18 per cent since the beginning of the year to close at 4,888.26 points.

Voice accounted for 63.2 per cent of Safaricom’s revenues in the first half with M-Pesa contributing 17.6 per cent, SMS (7.14 per cent) and data (6.73 per cent).

Safaricom’s decision to increase tariffs, which was followed by rival Airtel in December, saw it record lower traffic, according to analysts and Communications Commission of Kenya (CCK) data.

CCK noted that the operator recorded 16 billion minutes on its network in the nine months to December compared with 16.9 billion in a similar period a year earlier. But the 5.3 per cent drop was compensated by the 25 per cent rise in tariffs.

Safaricom is racing to grow its share of revenues from data as it gears up to meet the growing demand from smartphone users with multi-billion- shilling investments in technology and infrastructure.

Kenya has many lower-end users who only make calls and send text messages, but its increasingly young and tech-savvy population is buying higher-end handsets that are increasing data usage across the continent.

Safaricom’s voice market share based on traffic stood at 77.5 per cent in December compared to Airtel (12.5 per cent), Yu (8.6 per cent) and Orange (1.4 per cent).