Safaricom | Defending its turf
Safaricom has de-risked its revenue base by diversifying its portfolio away from traditional telco revenue with M-Pesa contributing 30% of revenue in H1'19. Diversification efforts and digitalisation within the organisation have expanded EBITDA margins 580bps since FY'16. Safaricom has pricing power, given its scale and breadth of services in the Kenyan market. However, regulators may seek to improve competition and offer more choices to consumers. Despite the risk of regulatory intervention and a potential 5% increase in corporate income tax, we expect free cashflows to increase CAGR 7.5% over the next five years as M-Pesa revenue almost doubles by FY'23. Increased cashflow raises the probability of a special dividend.
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