Safaricom, Company Update, September 2014

Recommendation: ACCUMULATE
We maintain our ACCUMULATE recommendation on Safaricom with a Fair Value of KES 14.20, 8.1% above the current price. We estimate total return of 12.7% including our forecasted dividend of KES 0.60 for FY15F (a for-ward dividend yield of 4.6%). For FY15F, we forecast earnings to grow 31.7% y/y largely driven by growth in reve-nue on the back of additional subscribers and increased usage as costs remain stable. Safaricom’s revenue growth over the last 3 years has largely been driven by growing subscriber numbers. However, as subscriber growth be-gins to taper off and the quality and variety of products continue to rise, we believe that growth in the long term will be driven by increased usage. Safaricom trades at a forward P/E of 17.4x, EV/EBITDA of 7.2 and dividend yield of 4.6%. While this is compares unfavourably to the regional median P/E of 11.8x and EV/EBITDA of 6.3x, Sa-faricom’s M-PESA advantage and the expected growth in earnings and dividends justify the premium. Notably, Safaricom’s forward dividend yield of 4.6% is higher than the regional median of 3.3%.


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