Telecoms sector

The Kenyan ICT sector has registered substantial growth over the years. In 2015 it contributed 0.9% to GDP. Telecoms continues to be an epicentre of growth, as witnessed in 2016. There has been enormous growth in the mobile communications industry, which has been a game changer.

Kenya has seen consistent rapid internet and mobile phone growth. This can be explained by an increase in the number of mobile phones users from 37.7m to 38.5m between December 2015 and December 2016, representing an increase of 3.2%. There is only listed company in the sector – Safaricom – which has a 71.2 % market share. Its main competitor is Airtel, which holds 17.6% of the market, with the rest split between several other operators. Safaricom came to the market in 2008 through an initial public offering. As of December 2016 the company had 27.7m mobile subscriptions, 21.6m. M-Pesa registered customers – the M-Pesa agency network is comprised of 124,084 agents – and 14.8m active 30-day mobile data subscriptions.

Safaricom’s largest shareholder is Vodafone Kenya, which holds 40% of the total shares issued, followed by the Kenyan government, which has a 35% share. The remaining 25% are free float.

Performance In The Stock Market

Overall foreign participation in 2016 averaged 68.4%, with the percentage of foreign purchases and foreign sales averaging 69.46% and 66.15%, respectively. Safaricom gained 17.48% in 2016 closing the year at KSh19.15 ($0.19) The turnover of the counters in 2016 was 29.49% of total turnover, while volume stood at 40.39%. The share price skyrocketed, driven by both foreign and local demand.

The year 2017 is not expected to be different, as the counter has maintained its momentum, with foreign institutions and local institutions having a net buying interest. Safaricom has historically issued dividends to shareholders. In 2015 the company issued KSh0.64 ($0.0062) per share, while in 2016 the company issued a dividend of KSh0.76 ($0.0074) per share in addition to a special dividend of KSh0.68 ($0.0066) per share. We anticipate that this trend will drive more interest from investors.

Market Outlook

Safaricom is a key catalyst that will drive a positive performance for the counter, translating to the advancement of bottom line performance and at the same time increasing investor confidence in the stocks, stemming from growth in the subscriber base and potential growth in internet penetration, which will be supported by increased usage of smartphones as well as the adoption of 3G and 4G networks. M-Pesa is also expected to record consistently strong growth from the Lipa na M-Pesa transactions.

Report On Market Share

In 2015 Airtel instigated a debate which sought to have the biggest telecoms operator, Safaricom, declared the dominant player in the telecommunications sector.

The Kenyan Communications Authority engaged an independent consultant to conduct a dominance study of the ICT sector to be carried out over 18 months, which will be published in the first quarter of 2017. Safaricom also hired a consultant to conduct an independent assessment of its dominance in the various segments. The dominance report would indicate whether the communications authority would have a say in the pricing of Safaricom’s tariffs.

Competition is a challenge for Safaricom as it eats up their market share. One upcoming player that poses a risk is the bank Equity Group, which acquired a mobile virtual network operator licence in 2014. The bank’s telecoms arm, Equitel, has a substantial subscriber base and has been gaining traction. In our opinion, it will take some time for Equitel to become a strong competitor, as customer uptake is expected to grow gradually. Equitel has a current subscription rate of 7.0%. as of June 2016.