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Safaricom Ltd Unaudited Half Year Results 30 September 2016

Safaricom 1H17 reported EPS up 32.4%y/y to KES 0.60, normalized EPS up 13.8%y/y to KES 0.51
Safaricom has announced 1H17 results marking a 32.4%y/y rise in EPS to KES 0.60. The figures were boosted by a one-off provision write back (net figure about KES 3.35bn) from a dispute(s) settled in favor of the company. Excluding it, normalized EPS was up 13.8%y/y. Management revised upwards EBITDA guidance for FY17 to KES 94-97bn from KES 89-92bn and CAPEX to KES 34-35bn from KES 32-33bn with CAPEX intensity at FY17 expected to be 16.4%. Overall, revenue was stronger than expected with net income in line with expectations.
Service revenue was up 15.4%y/y, with data growing +43.4%y/y and M-Pesa +33.7%y/y respectively. Data (16.1% of service revenue) was boosted by increased usage following a 16%y/y cut in data prices which increased data volumes by 74%y/y and in turn raised mobile data ARPU by 21%y/y. We expect mobile data to be a key growth area for the company as it expands its network (including 4G). There are currently 10m smart phones in the network.
M-Pesa revenue was driven by a 12.1%y/y increase in active users as well as growth in both P2P (76% of M-Pesa revenue) and non-P2P business (24% of M-Pesa revenue). Customer to business and business to business revenue grew by 64%y/y while Lipa na M-Pesa grew 73%y/y. Overall, Safaricom is moving towards value added services on its platform which is likely to be a key revenue driver for the financial services division in future. Premium Service Rate service users were up +30.8% to 6.4m.
Traditional telco business lines, voice and SMS revenue grew 1.1%y/y and 8.1%y/y respectively. Management remains positive on these segments and does not expect to see declines. Revenue from voice and SMS accounted for 55.4% of service revenue compared to 62.6% in 1H16. For the first time, voice accounted for less than 50% of ongoing revenue at 46.6% vs 53.2% in 1H16.
Operating costs grew 9.3%y/y (normalized grew +15.1%y/y). EBITDA margin came in at a robust 49.8% with the normalized rate at 46.52%. Depreciation grew 20.7%y/y to KES 16.35bn, on the back of higher CAPEX. Safaricom ended the year with 26.6m customers: 21m on voice- active 30 days, 17.6m on M-Pesa – active 30 days; 15.7m SMS customers (4.9m on SMS bundles); mobile data 14.9m – 30 days active. Based on our fair value of KES 19.50 in May 2016, we expect a small upward revision - but a downside compared to the current price. We therefore maintain a HOLD recommendation. (Company filing, Standard Investment Bank)

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