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Kenya: Safaricom Growth Outlook Good Despite Rivalry
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Business Daily (Nairobi)
14 May 2008
Posted to the web 14 May 2008
Helen Nyambura-Mwaura
Despite dominating Kenya's mobile phone market with an 80 percent share, there is still plenty of room for Safaricom to grow its revenue and subscriber base even as competitors multiply.
The company, which is due to list on the Nairobi Stock Exchange next month, has 10.1 million subscribers out of the country's 36 million population, which is more than 70 times the number of users it had in 2001.
Yet its revenue are yet to peak because mobile phone penetration in Kenya is relatively low at 35 percent, analysts say. Moreover, increased competition is unlikely to pose much of a short-term threat to Safaricom's profits with two new entrants struggling to roll out their networks.
"There is still considerable growth potential. In industrialised countries, you can get to levels above 100 percent, with people owning more than one phone," said Stephen Bailey-Smith, Standard Bank's head of research for Africa.
The first mobile phone operator to set up in Kenya in 2000, Safaricom is 40 percent owned by Britain's Vodafone Plc. The Kenyan government is offloading a 25 percent stake in an initial public offering and retaining 35 percent.
The offer, priced at Sh5 per share for local investors and Sh5.50 for foreign buyers, gives Safaricom a value of about Sh207 billion $3.4 billion).
Analysts say the listing could help create even more loyal customers, many of whom will be actual shareholders.
Being Kenya's most profitable company, it earned Sh17.2 billion in pretax profits last year.
They say Safaricom has been able to appeal to the rural and urban poor, who make up the majority of Kenyans, by introducing top-up cards for as little as Sh20 (30 US cents).
It was the first to launch a mobile phone money transfer system -- in a country where few villages have bank branches. Last month it launched a relatively cheap 3G service costing Sh12.6 per megabyte.
Analysts say the level of Safaricom's brand recognition will be difficult for newcomers to emulate. Its bright green and red logo adorns many street corners and in the case of several rural towns, entire commercial buildings.
By contrast main competitor Celtel which changed its name from Kencell several years ago, plans to rebrand itself again by changing its logo and colours to those of parent operator Zain Group of Kuwait.
Christopher Hartland-Peelof Exotix brokerage, said Celtel's market share had fallen to 20 percent from 32 percent in 2005, as it lost out to Safaricom.
New entrants -- Telkom Kenya and Johannesburg-based Econet Wireless -- have been struggling to launch operations, and could only manage about 10 percent market share in the next two years, he said.
"They will be competing on price and they will take some subscribers but I don't think it will be particularly material."
Safaricom's IPO is seen as a gauge of investor confidence in Kenya after the disputed December elections which triggered ethnic clashes that killed at least 1,200 people and displaced 350,000.
Speculators are expected to sell their shares once the stock floats on June 9, putting pressure on the price. Many analysts see price settling at between Sh6 and Sh7 apiece.
"There was a lot of speculative purchasing, people hoping to make a killing.
So it will be a little depressed in the beginning," said Paul Mwai of Old Mutual Asset Managers.
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Kenyans have shown a strong appetite for IPOs with prices quadrupling on the first day of trade some times.
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