Safaricom shares hit one month low

The Safaricom share price has fallen by three per cent since last week Tuesday to reach a one-month low despite the company’s record profits and news that it had struck an agreement with the Kenya government for additional spectrum that will enable it to build a 4G network.

The company’s shares closed the week trading at Ksh12.60 ($0.14), a level last seen in April, even as the company said profits for the year ended March 2014 rose by 31 per cent to Ksh23 billion ($260 million) up from Ksh17 billion ($195 million) posted the previous year.

The firm’s dividends jumped 51 per cent to an all-time high of Ksh0.47 ($0.054)ompared with Ksh0.31 ($0.035) the previous year.

The agreement with the government involves a trade-off where the company will build a Ksh15 billion ($172 million) security communication and surveillance system for the government and receive about half of the payment in the form of additional spectrum.

Safaricom said it will increase its capital expenditure in the next financial year if it is allocated spectrum for the deployment of a fourth generation network that it hopes will boost its data business.

“We will definitely adjust our capex upwards to make room for bigger investment in our data business if the spectrum is available. We are now ready to roll out LTE. This, together with innovations in our mobile money platform, M-Pesa, is what will drive our growth going forward,” said CEO Bob Collymore.

But investment in the 4G network, also known as Long Term Evolution (LTE), is dependent on the whether the company is allocated additional spectrum by the industry regulator, the Communications Authority of Kenya (CAK).

It is unlikely that the regulator would renege on a decision endorsed by President Uhuru Kenyatta. Analysts at Sterling Capital Ltd said the company is bound to make more investments in the non-voice business with a view to diversifying its revenues.

“Over the past few years, Safaricom’s revenue has been dominated by the voice segment. The firm’s management intends to grow the non-voice stream — SMS, data and M-Pesa — through investments and innovation to diversify the top line,” said Sterling Capital in a statement following the release of the firm’s annual results.

Safaricom has for years struggled to develop its data business into a key driver of revenue but the low penetration of Internet-enabled smartphones has limited the uptake of the services.

READ: Safaricom to invest more in its Internet, data segment

In the year to March 2014, non-voice services — SMS, data and M-Pesa — contributed 38 per cent, or Ksh52 billion ($597 million), of the company’s Ksh144.7 billion ($1.6 billion) total revenue. Voice remained the biggest contributor to the company’s earnings, standing at 60 per cent of total revenues.

The CAK is expected to distribute additional spectrum to local mobile operators through an auction next year following the migration from analog to digital television broadcasting systems.

Allocation of more spectrum would pave the way for Safaricom to roll out a 4G network allowing its customers to enjoy faster browsing speeds at relatively lower prices.

The company would also use the additional spectrum to improve the quality of its network, which has been a bone of contention with the industry regulator.

Mr Collymore said the firm will also invest in partnerships with handset manufacturers and vendors to drive the sale of Internet-enabled devices at affordable rates.

The growth of smartphones is important for Safaricom because the average revenue per user (ARPU) of a smartphone user is nearly twice that of a feature phone user.

Additional reporting by Peterson Thiong’o

SOURCE: The East African