M-Pesa is on course to become a US$1Bn business.
Safaricom Plc (NSE: SCOM) released its interim results on 10th November announcing a 12.1% year-on-year (y/y) rise in 1H22 net earnings. Combing through its numbers against our estimates, its net earnings per share print (KES0.92) outperformed our expectation of KES0.85. The outperformance was primarily driven by lower than forecasted cost environment. Direct costs came in at KES44.5Bn (+20.3% y/y), beating our forecast of KES49.2Bn, while operating costs came in at KES23.4Bn (+10.3% y/y) outperforming our forecast of KES29.6Bn.
M-Pesa revenues printed at KES52.3Bn (+45.8% y/y), against our forecast of KES55.9Bn. Behind the strong y/y growth, total transaction value grew 51.5% y/y to KES13.7Tn with volumes up 42.0% y/y to 7.3Bn. Two other factors were at play in the revenue performance: The lapse of zero-rated transactions (as expected) and a 31.3% y/y rise in 30-day active M-Pesa average revenue per user (ARPU) to KES300.71, reflecting an overall rise in pricing. Looking forward, we expect M-Pesa to become a US$1Bn business with our full-year revenue projections at KES118.9Bn (+43.9% y/y). We also forecast FY22 M-Pesa ARPU at KES319 and the 30-day active M-Pesa customers at 30.6Mn (+8.0% y/y).
Mobile data revenue came in at KES23.6Bn, below our projection of KES26.2Bn. We broadly believe the lag was due to price elasticity of data and we expect more pressure on data revenues. Consequently, we believe that there will be (downward) pressure on data ARPU in FY23. That said, we are impressed by the 26.7% y/y rise in data customers using more than 1GB of data and the 37.3% y/y growth in active 4G devices to 9.7Mn. For FY22, we project mobile data revenues at KES53.6Bn (+19.7% y/y) and ARPU at KES204 (+9.6% y/y).
Fixed service revenue came in line with our estimates (KES5.3Bn, +17.8% y/y) at KES5.5Bn. We were impressed with the customer growth – home customers increased 17.2% to 153.4K while fixed enterprise customers rose 38.3% y/y to 44.9K. We believe the return to office – following the recent easing of Covid-19 restrictions will be positive for fixed service revenues. That said, we maintain our FY22 projection of the aggregate fixed service revenue at KES11.1Bn (+17.1% y/y).
Voice revenues printed at KES41.5Bn (+3.2%y/y), which was in line with our projections of KES41.0Bn (+1.96% y/y). However, voice ARPU declined by 2.9% y/y and we still see a sustained downward glide. We maintain our FY22 voice revenue projection at KES83.2Bn on the back of increased utilization. On the other hand, SMS revenue came below our expectations largely driven by a 20.1% y/y decline in ARPU coupled with the decline in 30-day active customers. Voice and SMS revenues now account for 29.9% and 4.2% of service revenue, respectively, compared to 33.9% and 6.1%, respectively, in 1H21. We expect the share of Voice and SMS to decline further to 27.6% and 4.8% in FY22.
Without much surprises on our 1H22 expectations, we retain our full-year projections.
Going forward, we opine that M-Pesa will generate the lion’s share of service revenue while voice and SMS revenue will be the most affected as customers continue to embrace over-the-top technologies (OTTP). We remain cognizant of the heightened political risk in Ethiopia and its potential impact on Safaricom’s commercial schedule. Over the past 12 months, the market has attached a 30% premium on the Safaricom stock (as investors premium sized the entry into Ethiopia). If the political risks crystallize, then we expect an erosion of that premium. However, we maintain a cautiously optimistic stance on the venture on the back of the license’s time horizon.
