Share owners to score very big

22 July 2013 - 09:59
By Reuters

NAIROBI - Kenya's biggest telecoms operator Safaricom expects to reward its shareholders with higher dividends this year because of a lack of suitable acquisition targets, its chief executive said.

The company, which is 40% owned by Vodafone, forecasts that free cash flow will grow by 11% to 15% this year from 14.5-billion Kenyan shillings [about R1.6-billion] in its financial year ended last March.

Shareholders received 85% of that cash, boosting the company's share price. The shares are up 46% this year, against a 16% gain for the benchmark NSE-20 index

"There is no reason why it should be any less in the future ... we are seeing strong dividend growth year-on-year," CEO Bob Collymore told Reuters.

Safaricom controls 37% of the corporate data market in Kenya, including services such as data storage and recovery.

Its healthy market share removes the need to acquire other firms in that segment, such as AccessKenya, which is being bought by Dimension Data, Collymore said.

Ethiopia and South Sudan, meanwhile, are off-limits for expansion at the moment because of a closed regulatory environment in the former and lack of political stability in the later, Collymore added.

Safaricom's bullish forecasts for this year are driven by strong growth in its retail data and financial services businesses, including money transfer service M-Pesa.

The volume of data consumed this year in Kenya has increased by more than 50% from last year, with strong growth on daily usage, thanks to the growingpopularity of smartphones.

"We have taken all our laptops out of the stores now and we are putting out tablets and smartphones," Collymore said.

Of the company's 8.5-million-plus data customers, 1.3-million access the Internet through smartphones. Its most affordable smartphone - the Tecno, made by Tecno Mobile - sells for R700.

Safaricom has launched new initiatives for its financial services business to maintain M-Pesa's 20% growth and aims to recruit 100000 new merchants and small businesses to its new Lipa Na M-Pesa, a payments service that allows M-Pesa customers to pay for goods and services at zero cost. The service is currently offered by about 6000 outlets.

Safaricom is upgrading the M-Pesa platform to handle 320 transactions per second, up from 250, with work expected to be completed by the end of December.

It has also contracted Huawei to build a second-generation M-Pesa platform by August next year to increase capacity to 600 transactions per second and improve rerouting of traffic when the system fails.

"The platform at the moment is too remote. It is too inflexible and too volatile," Collymore said. "Last week it was down for three hours, which was a bloody nightmare."

However, Collymore voiced concerns over a possible regulatory clampdown in response to Safaricom's profitability compared with losses suffered by Kenya's three mobile telecoms operators - Bharti Airtel's Kenyan unit, France Telecoms' Orange, and Essar Telecom's Yu. "A tightening of the regulatory noose could be a risk for us," Collymore said.