Safaricom: Is it still thriving even during Covid?

Safaricom remains a Kenyan corporate giant

Safaricom is a Kenyan telecommunications giant behind the pioneering M-Pesa mobile payment system.

Over the last few years it has thrived, increasing revenues and profits (earnings tripled in 7 years). it is world renown for its M-Pesa scheme, and has expanded beyond its home base of Kenya across Africa. It remains the largest company on the Nairobi Securities Exchange by market capitalisation.

It released its H1 2020 figures earlier this week which gave us a closer look on how it is managing through the COVID-19 pandemic.

Safaricom remains a Kenya corporate juggernaut but COVID-19 has shaken it a bit.

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Headline figures indicate tough times

At initial glance it seems that Covid-19 has slowed Safaricom in its tracks;

Revenues have dropped by 4%, Profits have dropped by 6% and operating cashflow by a whopping 16%. The company seems to be worth 16% less on book than it was a year ago.
Revenues have been driven down by measures to support economy during Covid-19 like waiving fees on M-Pesa payments. Profits have been affected by an 8 fold increase in provision for expected credit losses (non-payment for services).
Safaricom has borrowed an extra KSh24bn ($22m) tripling its short-term debt exposure.

Growth in 4G and Fibre data

Despite the fall in Revenues, the zero rating of M-Pesa payments is a temporary measure that will go once Covid-19.
Mobile data revenues have grown by double digits, 4G even growing by 60% - and most indicators show that this will continue to grow.
Fibre-to-the-home (FTTH) has grown by over 50%, and with the increased working from home, there is a lot more growth to come.
The increased borrowing by the company is to continue investment in 4G and FTTH

Cashflows remain strong but one to watch

Operating Cashflows have dropped slightly mainly due to an increased tax bill and also weaker revenues and profits. They still remain higher than profits/earnings which is a positive sign.
Cash in the bank has dropped by 41% to KSh 15bn ($140m), this is not a surprise when a lot of investment has been made in the business and also supporting the government in the fight with COVID-19.
The company's short term debt is now 89% higher than its cash and other short term sources of funds. This is something that needs to be managed by Management and will affect the company's ability to keep paying out strong dividends

Book Value affected by dividends and more debt

Safaricom's book value has fallen by 16% to KSh 120bn ($1.1bn) due to a the large dividend payment in early November. This was expected and not a total cause for alarm.
Retained earnings have gone up 39% which is a strong positive and partially offset increase in short-term borrowing and increased expense liabilities.
Safaricom is still trading at 10 times its book value - Market Cap of KSh 1.5tn ($11.5bn) indicating that investors still have a strong appetite for it.

Safaricom still thrives but Covid-19 has had an effect

Safaricom still thrives, it is still profitable and net profit margins remain above 25%. It continues to generate more cash than its earnings, there is growth in a number of sectors including 4G and Fibre to Home.
For investors, the ROE is now 27.5%, which is almost triple what you get in treasury bills or money market funds.
Still COVID-19 has had an effect by leading to the first drop of revenues and profits in 5 years, and a worsening short-term cash outlook.
Hopefully COVID-19 will be a short-term effect and Safaricom will coming roaring back.

MONEYINAFRICA

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