The Safaricom #ticker:SCOM share that has recently hit highs of Sh30 at the Nairobi Securities Exchange (NSE) retains a double-digit percentage upside on the back of expected revenue growth from mobile money and data, analysts at ABC Capital say in a new note.
The stockbroker estimates a forward fair value price of up to Sh35 for the stock, which at a price of Sh29 last week would represent a premium of 20.7 per cent.
ABC estimates that by 2020, M-Pesa could rise above voice to be the largest source of revenue for the telco, whose net profit for the six months ended September 2017 grew by 9.5 per cent to Sh26.2 billion.
“We are positive on the firm’s future prospects due to a general increase in population figures in the country, which the firm has managed to capture, grow and maintain as clients,” said ABC analyst Raymond Kipchumba in the report.
“We project M-Pesa to earn Sh114.4 billion (a 27.6 per cent forward compound annual growth rate( CAGR) by the 2020 financial year to dethrone voice as the largest revenue contributor on the back of increasing 30-day active M-Pesa users to 29.6 million.”
ABC estimates voice revenue to hit Sh96 billion and Sh68 billion for data by 2020, representing CAGR of 2.3 and 32.5 per cent respectively.
ABC’s projection of a higher share price is in spite of the firm’s relatively high price-to-earnings ratio (PE) of 23.4 times, which is higher than the market average of 14.4 times.
The P/E ratio is obtained by dividing a company’s share price with its earnings a share, and shows the amount of money investors are willing to invest to get a shilling return from the company. The higher the P/E ratio, the more expensive a share is considered to be.
It can, however, also indicate that investors are bullish on a stock, showing that they are willing to pay more to gain a footing in a stock based on expectations of higher earnings going forward.
Safaricom has in the past one year gained 57.6 per cent, making it one of the better performers in the market.
The stock defied the two-year bear run that lasted until March last year, buoyed mainly by demand from institutional investors.