NEWS

International investment banks Morgan Stanley and Renaissance Capital have predicted that Safaricom’s share price could hit seven shillings, driven by investor expectations of improved performance for the telecommunications firm.

 

In separate research reports, analysts at both investment banks revised the price target for the Safaricom share to between Sh6.40 and seven shillings citing lower market risks for the mobile phone services company ease.

 

“The valuation upgrade is driven largely by our expectations of better financial performance from Safaricom over the medium term, less regulatory risk and an overall telecoms landscape that we believe appears more stable and predictable than two years ago,” said Rencap in a research note.

 

A Communications Commission of Kenya (CCK) report released on Thursday showed Safaricom is still Kenya’s dominant telecommunications firm with a market share of 77.5 per cent based on voice traffic.

 

Its income from short message service (SMS) in the fourth quarter of last year was more than the total revenue earned by the other mobile phone companies.

 

(Read: Safaricom SMS sales overtake rivals’ voice units)

 

Both Morgan Stanley and RenCap were involved as transaction advisors in the Safaricom initial public offering (IPO) that saw the firm list on the Nairobi Securities Exchange (NSE).

 

The share has been trading in the range of Sh6.40 to Sh6.60 in the past three weeks, ahead of the announcement of its annual results next month.

 

Renaissance Capital notes in its report that Safaricom is now past the key regulatory risk that saw mobile termination rates drop from Sh2.21 to Sh1.44, eating into revenues it used to receive from other mobile phone firms that routed calls on its network.

 

The peaceful conclusion of the General Election has also cut political risks, while the deactivation of 1.2 million unregistered SIM cards and increased taxation on M-pesa transactions has not affected revenues as was feared.

 

“We do not envisage any of these measures causing major harm to Safaricom, and although we expect subscriber growth to be lower in 2013 than it was in 2012, voice Average Revenue Per User (ARPU) has trended upwards; and we think any switch-off of Safaricom SIMs during the SIM registration process will have a limited impact on voice revenue,” say Rencap.

 

Rencap projects that the company will increase its dividend marginally from last year’s Sh0.22 to Sh0.31, rising to Sh0.36 in 2014 and Sh0.42 in 2015 respectively.

 

Rencap has also revised revenue expectations for Safaricom from Sh120.5 billion to Sh122 billion for the year, calculating that ARPU will be Sh500, having estimated Sh488 in a November 2012 research note. For 2014, the revenue estimates are revised upwards from Sh125.3 billion to Sh 132.2 billion.

 

“From an ARPU perspective, we estimate service or blended ARPU approaching Sh500 at year end 2013. A favourable product mix and higher call tariffs should be supportive of such an increase in blended ARPU,” says RenCap.