Market Report – 12th February 2021

Market Commentary:

• The All Share Index and NSE 20 Indices gained 4.4% and 1.3% w/w to close the week at 164.02 and 1,889.77 respectively mainly attributed to gains in large cap counters: EABL (+5.9% to KES 175.00), KCB (+2.6% to KES 38.00), Equity (+1.6% to KES 37.85) Co-op (+4.1% to KES 12.70) and Safaricom. Notably, Safaricom rallied 5.9% w/w, reaching an all-time high of KES 39.00 during the week before closing at KES 38.35. We attribute this to positive investor sentiment following the announcement of an interim dividend (a first for the company) of KES 0.45 per ordinary share (book closure on 5th March 2021). Overall market turnover declined by 35.0% to KES 2.0 billion while the volume of shares traded declined by 37.8% to 68.0 million. We expect overall market activity to increase as investors position themselves (particularly on banking counters) ahead of FY2020 reporting season.

News Highlights:

 Update on Safaricom

On 4^th February 2021, Safaricom provided an update on the company’s financial performance. We highlight some of the key take-aways from the briefing below:

• • • MPESA
      • The Central Bank of Kenya’s (CBK) move to remove charges on transactions between bank accounts and mobile wallets would have a dampening effect on revenues in the short term. However, the company is keen on monetizing these transactions in other ways.
      • The reduction in MPESA tariffs of up to 45.0% is only expected to have a temporary negative impact on revenues. In the long-term, the resultant increase in customer numbers and transaction volumes is anticipated to make up for this.
      • While Mshwari was initially affected by the CRB listing suspension with a dip in lending (but has improved) Fuliza has been doing well consistently.
      • On the CBK’s vision to extend interoperability to agents and merchants, management intimated that the company was willing to open up the company’s agent and merchant network to the competition on commercial basis. This, according to the company, would enable it recoup investments made in building its agent and merchant network.
    • • Mobile data
        • Mobile data pricing is anticipated to continue declining. However, according to management, mobile data growth is holding.
        • The company is seeking to enhance the use of its affordable handset financing scheme “Lipa mdogo mdogo” by having outlets nearer to customers
      • Fixed data
        • According to management, Fibre to The Home (FTTH) experienced accelerated use as people worked from home due to the pandemic while Fibre to The Business (FTTB) has improved as people resume work. The company had doubled the speeds on all of its home fibre packages during the pandemic as a promotional offer.
        • This week the company introduced a permanent offer on its home fibre packages which offers speed increases of between 60.0% and 250.0% but with slight price increases on the higher tier offerings.
        • The new speeds for the bronze, silver, gold and diamond packages will be 8Mbps, 20Mbps, 40Mbps and 100Mbps up from 5Mbp, 10Mbps, 20Mbps and 40Mbps respectively. The prices for the Gold and Diamond packages has risen by 5.3% to KES 5,999 and by 4.3% to KES 11,999 respectively from KES 5.699 and KES 11,499 while the price of bronze and silver packages remained the same at KES 2,900 and KES 3,999 respectively.
        • We opine that the increased speeds will be welcomed by subscribers working from home, especially given the new prices for the two packages are not significantly higher. We also see these new offers as more competitively priced particularly in areas that are served by multiple ISPs.
        • The company still holds market lead in the fixed data segment (3Q2020: 35.6%).
      • Ethiopia
        • According to management, the Ethiopian Communications Authority (ECA) has extended the submission deadline from March to April 2021. Safaricom will take the lead (with a 51.0% shareholding) of the consortium (a joint venture with Vodafone, Vodacom group and other strategic investors) that is going into Ethiopia. The consortium received $500 million loan from the US International Development Finance Corporation to fund the expansion into Ethiopia.
      • Internet Of Things (IOT)
        • New IOT projects are underway and in early stages with innovation remaining a primary focus.

Commentary

• Overall, we are optimistic of the company’s growth prospects. However, we see regulation, particularly on MPESA, as a major risk.
• The CBK’s vision to expand interoperability to merchants and agents in the medium-term from just P2P payments is a cause for concern. The competition is yet to catch up in terms of building a mobile money ecosystem (products, customers, agents etc.) that can rival that of Safaricom. However, agent and merchant interoperability would help the competition close some of the gap (this will also depend on investments made to increase network coverage and quality). There is also possibility that CBK may require lower tariff on mobile money transactions in the future.

Recommendations:

Kenya Re – Hold