Capital Markets

Citi lifts Safaricom stock to 'buy' on M-Pesa overdraft

share prices
A share prices board at the NSE. FILE PHOTO | NMG 

Citi Global Markets has revised Safaricom #ticker:SCOM stock from ‘neutral’ to ‘buy’ status, tipping the new overdraft features on M-Pesa and growing e-commerce to push the net earnings above Sh61 billion.

Citigroup’s investment banking division said risks such as intense competition, which had seen it maintain a cautious outlook on the stock for more than 15 months, have now materialised and factored in the current price.

“We see new overdraft features, e-commerce and AgriTech as structural factors that could drive M-Pesa growth beyond our current assumptions (based on usage growth),” said Citi.

“…new overdraft facility could become a catalyst for merchant payments. We see an opportunity for M-Pesa revenue growth in FY19-24F to double from our base case assumption.”

Citi says based on the popularity of Okoa products, which is an emergency credit for airtime and data, demand for the new overdraft is likely to be strong.


This is expected to significantly improve yield on Lipa na M-Pesa transactions for Safaricom, further supported by onset of presumptive taxes.

“The changes to SME taxation, effective from 2019, we think, could become an important driver for faster adoption of digital payments by small merchants,” says Citi.

Based on the recent signals from the Communication Authority of Kenya, Citi says the much-awaited report on dominance is unlikely to be highly negative for Safaricom.

It also does not expect the report to affect M-Pesa, given that wallet interoperability is in place.

Safaricom has been battling claims of market dominance especially from rivals.

Citi says Safaricom stock is currently trading close to historic lows and has the potential to rise going forward. On Monday, the share changed hands at between Sh23.25 and Sh23.65.

“Our bull case assumes upside of 49 per cent. We upgrade the stock to Buy from Neutral with a price target of Sh27,” it says.