Paratus Namibia Holdings continues its aggressive expansion, driving strong revenue growth but facing profitability challenges due to rising costs and investment-heavy strategies.
The company realised N$327.3 million in revenue in an aggressive expansion strategy that delivered a 16.4% year-on-year (y/y) growth.
According to an analysis by Simonis Storm Securities, this growth was driven by strong contract-based services (up 8.8% y/y), higher Armada Data Centre occupancy, and a surge in non-recurring revenue (up 33.4% y/y) from network installations and telecom equipment sales.
"This reinforces the demand for reliable telecom infrastructure and digital connectivity in Namibia, where Paratus remains the dominant independent operator," Simonis says.
The analysts say this growth, however, comes at a cost as operating expenses surged 31.6% y/y, driven by the N$14-million transformation project, increased network roll-out costs, and the absence of N$7 million in foreign exchange gains from last year.
"This led to the earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin compression to 39.6%, compared to 42.7% in the first half of 2023," Simonis says.
The divergence between revenue growth (up 16.4%) and Ebitda growth (up 7.9%) indicates that the cost structure is scaling at a faster rate than revenue, with operating leverage yet to materialise.
At the operating profit level, earnings stagnated at N$66.4 million, despite higher revenue.
This was due to rising depreciation and amortisation costs, which reached N$59.1 million (a 18.8% y/y increase), reflecting increased investment in telecom infrastructure.
"While Paratus is expanding its physical network, short-term profitability is being eroded by higher non-cash expenses," Simonis says.
This trend is expected to persist into the second half of the 2025 financial year, as new assets are deployed but not yet fully monetised.
At the net profit level, growth was a strong N$26.5 million (up 42.4% y/y), but this was not driven by operational efficiency - it was entirely due to tax optimisation.
"The effective tax rate collapsed to 17% from 37%, as N$18.4 million in dividend income was tax-exempt compared to just N$100 000 last year.
"Without this tax break, pre-tax profit growth was only 7.9% y/y, making the headline net profit growth somewhat misleading."
Earnings dilution remains a key concern. The June 2024 rights issue expanded the share base, leading to a 30.2% y/y drop in base erosion and profit shifting to 26.43 cents.
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This means even as profits increased, per-share earnings declined, highlighting the lag between investment and financial returns. Investors are funding expansion, but the key question is when this would translate into sustained earnings growth on a per-share basis.
Paratus' total assets surged 51.7% y/y to N$2.14 billion, reflecting heavy capital deployment into property, plant and equipment of N$1.16 billion, and investments at fair value of N$529.7 million, up from just N$147 900 last year.
Contract liabilities stand at N$320 million, which primarily represents prepayments from customers under long-term indefeasible right-of-use agreements.
Debt levels remain stable at N$332.2 million, with N$30 million due in September 2025, which management intends to refinance. This will depend on refinancing costs, as Paratus has N$1 billion in senior unsecured floating rate notes listed on the Namibia Securities Exchange.
Operating cash flow grew 29.7% y/y to N$47.5 million, but this was insufficient to cover capital expenditure needs (N$125.2 million), leading to a net cash outflow of N$28.5 million.
"The cash balance at period-end was just N$6.6 million, meaning Paratus is effectively funding growth through a combination of working capital adjustments, external financing, and deferred payments," the analysts say.
This reinforces the view that the business is still in a reinvestment phase, rather than cash-generation mode.
"The interim dividend cut to 5 cents per share, compared to 10 cents for the first half of 2023, signals a shift towards reinvestment over payouts," the analysts say.
