Safaricom is also likely to benefit from fast earnings growth before income tax, depreciation and amortisation (EBITDA) margins from fees and revenues from partnerships.
With the favourable factors on its side Safaricom price could rise by about 10 per cent from its current depressed state to Sh27.20, Citi said.
Faster-than-expected growth in money transfer business and data is likely to minimise the adverse impact of the recent tax measures on telcos such as Safaricom #ticker:SCOM.
An analysis by Citi Global Markets, multinational Citigroup’s investment banking division, indicates that Safaricom is also likely to benefit from fast earnings growth before income tax, depreciation and amortisation (EBITDA) margins from fees and revenues from partnerships.
With the favourable factors on its side Safaricom price could rise by about 10 per cent from its current depressed state to Sh27.20, Citi said. The firm’s average share has slid to Sh24.25. Safaricom has been one of the major victims of investor exits in recent times, having lost a fifth of its value in the past six months.
“Our Sh27.20 price target is based on DCF [discounted cash flows] valuation. …The premium, however, might be justified by superior growth and synergies between the digital platform and telecom business,” said Citi.
However, the analysts say that investors should trade cautiously on the share given the revenue measures that have been outlined in recent times touch directly on the company’s operations.
Among the measures are the increase in money transfer service fees as well as excise duties, which have been set to rise annually in order to adjust to inflation movements.
“Macro risks, including risks associated with the fiscal policy, have been one of the reasons for our cautious view on Safaricom.”
Regulation of the sector is also seen as a big risk for Safaricom but favour small players.
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Note: The results are not exact but very close to the actual.
