Standard Investment Bank (SIB) has given the Safaricom share a higher valuation of Sh19.50 after a 19.6 per cent net profit growth, but advised investors to “hold” because the current price was quite close to the previous target figure.
The target price is 12.7 per cent higher than the average traded price of Sh17.30 per share as at last Friday. The current price is already 8.8 per cent higher than the price when SIB last did the valuation in November and recommended a “buy”.
“We revised our recommendation back to a HOLD from BUY following what we considered robust financial year 2016 results for the period ending March 2016. Safaricom has notched 8.8 per cent higher since our last report in November 2015, and despite a higher fair value,” said SIB in analysis sent to clients.
The analysts said there were indications that the company was going to perform well in coming year as it invests in advanced technology.
The firm reported that its net profit grew by 19.6 per cent to Sh38.1 billion for the year to March 2016 following nearly 20 per cent expansion in total revenue.
It proposed a dividend of 76 cents a share, up from 64 cents in the previous year. “The second half of the year witnessed a broad acceleration in growth, which is important for the outlook of the business in coming year.
‘‘In financial year 2017, Safaricom will work on quality improvement by building more 2G, 3G and 4G sites, upgrading WiMAX sites and rolling out its own fibre to more buildings and to the home,” said SIB.
SIB expects the company will even have a higher dividend payout in the coming year, standing at 88 per cent of the net profit, up from this year’s 80 per cent.
The investment analysts forecast the net profit will rise to Sh42.7 billion in the financial year ending March 2017—which will imply a 12.1 per cent growth. In line with this forecast, earnings per share will then rise to Sh1.07 from this year’s 95 cents.
SIB said it saw little regulatory risk to the company in the coming year. The analysts see the regulators as tending towards maintaining profitability momentum in the industry and avoiding predatory pricing that would shrink industry revenues.
“We do not see any major regulatory downside in the coming year for Safaricom… We think the measures taken by CA and CAK will be to, at the very least, be aimed at sustaining profitability momentum for the sector so as to avoid potential predatory pricing,” said SIB.