Safaricom record share price was overpriced by Sh250 billion, analysts say

With 22 days to go for Safaricom to announce its financial performance, the top telcos share price has hit record levels.

Safaricom shares traded between Sh30.25 and Sh31 .25 on Monday and hit a 52-week record of Sh33.5 on expectations that the billions will continue to roll in.

Sterling Capital Limited have however warned that increased regulation and decline of voice revenues may hit investors with a 17.9 percent downside.

“We are UNDERWEIGHT on Safaricom with a fair value estimate of Sh27.15 from the current market price. We do not believe that the current market price is a fair reflection of business value and mid-term earnings potential,” Sterling Capital said in a note to investors.

This is despite a forecast of 3.4 percent growth in voice call revenues to Sh93.2 billion and 6.3 percent growth in messaging revenues to Sh17.7 billion.

Sterling said the valuation estimate is largely based on declining market share and resulting modest growth in voice and messaging service revenues.

“We see this as a trend FY2018 – FY2020 with voice calls service ARPU falling further to Sh269, Sh253, and Sh238 respectively. This means that growth will highly depend on the ability to grow customer numbers and increase usage,” Sterling said.

In terms of future growth prospects, they maintain a positive outlook for M-Pesa and both data service revenues largely driven by growth in registered customers, increased smartphone penetration, and new strategic business partnerships.

Sterling says that overall they see Safaricom focusing its efforts on growing customer loyalty through improved service quality, aggressive marketing, product diversification, and innovation.