Safaricom released their 1H19 results this morning before market open. EPS increased by 20.2% y/y to KES 0.79 driven by revenue growth and margin improvement. Earnings were in line with our expectation of EPS of KES 0.78.
 
Key Highlights;
 
– Service revenue increased by 7.7% y/y to KES 118.2bn, 3.3% below our expectation of KES 122.6bn. Revenue growth was supported by 18.2% y/y growth in M-Pesa revenue to KES 35.5bn and a 10.8% y/y growth in mobile data revenue to KES 19.5bn.
 
– Mobile data: usage per customer per month increased by 67% y/y to 639MB, ARPU up 7.9%y/y to KES 183. Mobile data customers increased by 4.1% y/y to 17.6m, notably unchanged compared to full year subscribers, falling below our expectation of 18.4m subscribers, hence impacting revenues.
 
– M-Pesa: Lipa na M-Pesa revenues were up 49.9% y/y, P2P revenues up by 26.2% y/y, withdrawals revenue up 8.4% y/y. New business accounted for 27.2% of M-Pesa revenues compared to 25.8% in 1H18. ARPU stood at KES 284 (+10.2% y/y), M-Pesa customers increased by 8.8% y/y to 21.0m (in line with expectation).
 
– Voice revenue was up 1.4% y/y while SMS revenue declined by 1.2% y/y. Fixed service revenue was up 21% y/y, homes connected stood at 79,000.
 
– EBIT increased by 18.7% y/y to KES 44.6bn, EBIT margin improved by 350bps y/y to 36.3%, above an expected 35.0% EBIT margin.
 
What Stood Out;
 
– Mobile data subscribers remained relatively unchanged compared to FY18 numbers. We view this negatively on account of impact to segment revenues.
 
– Mobile data usage growth of 67% on the back of an estimated c.10% cut in prices in the period. We highlight faster cut in prices in September 2018 (c.39% on an average price per MB basis), which may lead to stronger growth in usage in 2H19f.
 
Impact on investment thesis;
 
– We highlight slower than expected revenue growth and faster margin improvement compared to our estimates. We will be adjusting mobile data and M-Pesa ARPU numbers downwards. Further, we will adjust mobile data subscribers downwards, pointing to slowed growth in smartphone uptake.
 
– We further highlight that management guidance for FY19 remained unchanged despite the excise adjustment in 2H19 which led to price adjustments in the period.

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