This archive report was first published on 6 May 2020.
Published on May 6, 2020, Safaricom's growth prospects are driven by its strong management, cashless transactions, and mobile data revenue growth.
Investing, as defined by Warren Buffett, is the transfer of purchasing power now with the expectation of receiving more purchasing power in the future. This is not about throwing darts at a board, but rather investing in businesses with moving parts that require careful consideration.
The riskiness of an investment is measured by the probability of causing a loss of purchasing power over the contemplated holding period, not by the movement of the stock price.
Management ¶
The appointment of Peter Ndegwa as CEO has been positively received by investors, with the stock price rising from KES 26 to KES 30 since his appointment on April 1, 2020.
As Warren Buffett noted in his 2011 Shareholder's letter, 'The primary job of a Board of Directors is to see that the right people are running the business and to be sure that the next generation of leaders is identified and ready to take over tomorrow.'
Cashless Transactions ¶
According to the Kenyan National Bureau of Statistics' Economy Survey, 2020, total mobile money transfers grew by 9.1% from KSh 3,984 billion in 2018 to KSh 4,346 billion in 2019.
Communications Authority statistics show that M-Pesa recorded a market share of 98.8% in the three months between October and December 2019, providing Safaricom with a strong opportunity to capitalize on the growth of cashless transactions during the COVID-19 era.
Mobile Data Revenue ¶
Safaricom's mobile data revenue grew by 21.1% in the second half of its 2019/20 financial year, driven by increased smartphone penetration and usage, as well as a 28.3% reduction in effective rate per MB.
Forbes estimates that e-learning will reach $325 billion by 2025, and Kenya has seen a significant increase in online learning, leading to a surge in mobile and fixed data consumption.
Mobile Lending and Saving Products ¶
The Central Bank of Kenya's 2019 quarter one credit survey report recorded an increase in demand for personal or household loans by 39%, with gross banking sector loans standing at Ksh.2.58 trillion in March 2019.
Safaricom, in partnership with KCB and CBA, continues to drive mobile lending and savings products such as Fuliza, KCB M-PESA, and Mshwari.
Value Chain Play ¶
Safaricom has invested in IT capabilities to map a monetization path in critical verticals such as agriculture, health, education, and e-commerce.
According to the Kenyan National Bureau of Statistics' 2020 Economic Survey, the agriculture sector remained the dominant sector in Kenya in 2019, accounting for slightly over 30% of the GDP.
