Safaricom owners recoup capital from fat dividends

Safaricom’s #ticker:SCOM incremental dividend payouts have returned the entire capital of the company’s owners and left them with an additional Sh101.2 billion, highlighting the enormous returns enjoyed by the telco’s long-term investors.

The Nairobi Securities Exchange(NSE)-listed firm went public On June 9, 2008 at an offer price of Sh5 or an aggregate value of Sh200 billion.

Last week’s declaration of a total dividend of Sh74.92 billon for the year ended March took Safaricom’s cumulative payouts to Sh301.2 billion since the initial public offering (IPO).

This means that the entire capital investment by shareholders, including the Kenya government and UK’s Vodafone Group Plc and its affiliates, has been returned and exceed by dividends alone in the 11 years.

Safaricom’s investors have also racked up capital gains of nearly Sh1 trillion over the period, making the telco one of the most lucrative investments on the NSE in the past decade.

One of the investors who continues to ride Safaricom’s wave of success is billionaire John Kibunga Kimani who has been buying the telco’s shares since the IPO.

Mr Kimani, who is in the list of the company’s top individual shareholders, currently holds 12.6 million units and is set to receive a dividend of about Sh23 million on December 1.

Safaricom declared a final dividend per share of Sh1.25 and an additional special distribution of Sh0.62 per share for the year ended March, bringing the total to Sh74.92 billion.

The payout sits above the market value of 92 per cent of all listed firms.

Safaricom has managed to make large capital investments in
telecommunications infrastructure, introduce new services and pay incremental dividends with minimal debt and without seeking additional funding from shareholders.

The company’s upcoming dividend represents a compound annual growth rate of 30.52 per cent from the Sh4 billion it paid for the year ended March 2009.

“The board remains committed to investing in the business and continuing our strong record for paying progressive dividends each year,” Safaricom said when announcing its results last week, adding that its balance sheet remains strong.

The company’s success has been built on innovation and savvy marketing that has allowed it to profitably grab a dominant market share in voice, SMS, data and mobile money services while rivals try to lure customers with cheaper prices.

The company’s new innovation is “Fuliza”, a daily revolving credit service that attracts a facility fee of 1.083 per cent of the value of the loan and represents the latest extension of the lucrative mobile money platform M-Pesa.

A total of Sh45 billion was transacted through Fuliza within the first four months of its launch, earning millions for the telco and its partner banks, the CBA Group and KCB Group.

“Innovation and partnerships continue to define our approach to revenue diversification and growth,” Safaricom said.

“This year we made good progress by securing key partnerships for our M-Pesa business including AliExpress to drive our payment business, Western Union to drive remittances and Fuliza, our overdraft product, to drive lending.”

Safaricom’s revenue growth rate dropped to a new low of seven per cent to Sh250.2 billion in the review period, partly reflecting the company’s maturity and increased competition.

Analysts say the telco will rely heavily on M-Pesa going forward, adding that other business lines such as voice and data are feeling the pressure of increased competition by rivals.

“We expect M-Pesa to continue to be Safaricom’s revenue driver as voice and SMS decline while mobile data’s growth is likely to be negatively affected by increased competition,” AIB Capital said in a research note.

M-Pesa revenue recorded the highest growth rate of 19.2 per cent to Sh75 billion while voice registered a marginal increase to Sh95.9 billion. Sales from messaging dropped 1.3 per cent to Sh17.5 billion as growth of mobile data slowed down to 6.4 per cent.

“We attribute this to increased competition which led to loss of customers and forced Safaricom to lower prices,” AIB said of the performance of voice, SMS and mobile data.

The company’s mobile subscriptions rose 7.7 percent to 31.8 million users, with 22.6 million of them actively using M-Pesa.

Safaricom says it will continue to invest in existing and new services in the near term in search of growth and diversification.

“Looking ahead, the business will sustain its momentum of investing in the quality of our service and diversification of our revenue portfolio to ensure sustained returns to shareholders,” the telco said.