Safaricom Plc (NSE: SCOM) FY19 Earnings Note
Safaricom Plc (NSE: SCOM) announced a 14.7% y/y growth in FY19 earnings per share (EPS) to KES 1.58. Similarly, growth in operating profit (EBIT) was sturdy at +13.0% y/y to KES 89.6Bn. Service revenue rose 7.0% y/y to KES 240.3Bn supported by positive growth across all revenue segments except SMS (voice +0.3%, SMS -1.2%, mobile data +6.4%, fixed data +22.7% and M-PESA +19.2%). The slow growth in mobile data revenue is partly attributed to the absorption of the 500bps increase in excise tax (to 15.0%) on data services. The recommended dividend per share (DPS) has increased by 13.6% y/y to KES 1.25. Additionally, a special dividend of KES 0.62 per share has been proposed, with books closure date to be communicated later. The total dividend (translating to a yield of 6.3%) will be paid by 1st Dec 2019.
Our View:
A 14.7% growth in bottom-line numbers in the current economic environment indicates a resilient business with a strong competitive edge and keen on long term growth and value. Additionally, with a strong cash flow position (KES 88.5Bn), SCOM shows stout affiliation with its shareholders by offering to return excess capital by way of special dividends, KES 0.62 in FY19 (KES 0.68 in FY16). Potential regulatory interventions are still possible despite the pending merger of Airtel and Telkom (32.4% market share). These could be on certain product areas such as mobile money interoperability, new tariff approvals, fees on mobile loans, loyalty schemes and promotions. These potential regulatory controls could erode Safaricom’s competitive edge in these product segments.
We are currently reviewing our recommendation on Safaricom
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