Safaricom breaks record with Sh12b dividend payout

Telecoms operator Safaricom was Tuesday on the path to making history – again – after it declared a Sh12.4 billion dividend to its shareholders – the highest ever by an NSE-listed firm.

The payout, which awaits the approval of the board, is 41 per cent higher than last year’s 22 cents per share. If approved, shareholders will get 31 cents for every share held offering relief to the long-suffering investors.

The proposed dividend payout came as Safaricom once again broke its own money minting record with a Sh17.5 billion after- tax profit for the year ended March 31.

It was the first time that Safaricom’s profit grew after two consecutive years of decline. Safaricom’s return to profit growth was driven by steep increase in non-voice revenues showing that its heavy investment in data business is beginning to pay dividends.

Analysts have in recent weeks been forecasting higher profitability for Safaricom and a higher dividend payout for the year, causing the biggest rally in the company’s share price since it went public in 2008.

(Read: Safaricom posts Sh17.5bn post-tax profit)

During Tuesday’s trading, Safaricom’s share price rose to an average of Sh7.10 or 20 cents higher than the previous day’s average of Sh6.90.

The share price peaked at Sh7.20 in Tuesday’s trading but was below the historic high of Sh8.15 recorded shortly after the company’s listing in 2008.

Safaricom’s ability to pay higher dividend is seen to be linked to higher cash flow that is not allocated to any capital expenditure in the coming year. Safaricom’s cash flow increased 55.2 per cent to Sh14.5 billion from Sh9.35 billion the previous year.

Non-voice revenues rose 29 per cent, helped by a tripling of the number of short messages sent during the year. Safaricom chief executive Bob Collymore attributed the growth in SMS to the Y-generation.

This growth positioned SMS as one of Safaricom’s key revenue drivers accounting for 30 per cent of total revenues or Sh10.13 billion in the year.

(Read: Safaricom SMS sales overtake rivals’ voice units)

“We do not know the exact demographics of the population responsible for this growth in the SMS usage but they are young people. It remains a popular service because of affordability that came with the bundles we offered,” Mr Collymore said.

Analysts were also surprised by the growth in SMS revenues.

“We were impressed by the performance of SMS coming in particularly strongly despite our initial thoughts that the business would start to stagnate,” said Standard Investment Bank analysts.

Safaricom’s performance continues to show the steady decline in the contribution of voice to the company’s profitability.

The listed firm, with a market capitalisation of Sh284 billion ($3.4 billion) as of Tuesday, raised its total revenues by 16.2 per cent to Sh124.1 billion – the highest ever in corporate Kenya’s history.

“Most notable was our growth in non-voice service revenue with a 29 per cent increase in the year underpinning our strategy to diversify our revenue channels,” the company said in a statement.

The change in fortunes at Safaricom was also was also clear from the increase in earnings before interest, depreciation and amortisation (EBITDA), the most used measure of a telecom firm’s ability to turn its revenues into income.

The EBITDA margin stood at 39.6 per cent, up from 35.1 per cent – showing that in the financial year ending March 31, the company had a better overall performance compared to the previous year.

“Management have indicated that the EBITDA margin attained for this year is sustainable going forward, which leads us to believe that management feel well positioned from a competitive perspective,” said SIB analysts.

Kestrel Capital analyst Kuria Kamau said in a note to investors that the company’s current share price reflected its fair value.

“Following the announcement, Safaricom is now trading at a P/E of 15.7, dividend yield of 4.5 per cent and return on equity of 21.9 per cent compared to MTN’s P/E of 16.1, dividend yield of 4.7 per cent and return on equity of 23.3 per cent. The market average P/E is 15.3 and dividend yield 3.4 per cent,” Mr Kamau wrote in the note.

The implication is that at the current performance, Safaricom is valued in line with its fundamentals and companies doing similar business in the region.
The company also appears likely to continue benefiting from the cell phone service subscription.

Total industry's subscriber base stood at 30.4 million at the end of December 2012, representing 78 per cent national coverage, up from about 71 per cent in the previous year.

The Communications Commission of Kenya (CCK) has recently stated that at 30.4 million, the market is close to saturation.

“However, as observed during the previous period (quarter to September 30, 2012), the rate of growth has slowed down as the market appears saturated and tending towards maturity,” the CCK said in its report for the quarter that ended December 2012.

The cost of sales rose by 4.4 per cent to Sh56.5 billion, underlining the efforts Safaricom has made to grow its profit from a lower cost base.

“The medium to long-term outlook remains positive backed by sustained strong growth in data and the expected cost containment to bring in operational efficiency,” said Old Mutual Securities in its update to investors.

Mr Collymore said that call drops had reduced by 25 per cent in the course of the year while network downtime had been cut by 66 per cent to below 20 minutes in a week.

The Safaricom boss however said the recent imposition of excise duty was not a good thing as it would pressure down performance of cellphone service providers.

“We urge the government to reconsider the move to impose excise duty on airtime. It looks like an easy target to tax. But it would be fundamentally wrong to kill this industry prematurely,” said Mr Collymore in a question-and-answer session with the press.

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