Category Archives: Safaricom IPO

Safaricom IPO starts

The launch ceremony was held on Friday morning, and this came after several lively debates on TV news shows last night on the issue of if the IPO should go on

A bit of politics: ODM and civil society were a bit late to the party (they have known for two weeks that this was coming), with final complaints about Mobiltelea. And ODM MP’s (Anyang Nyongo and Omingo Magara) went ahead to put a caveat notice in the newspaper today warning investors that the Safaricom privatization is being done outside of existing privatization law, the privatization commission supposed to oversee the process has been sidelined and that there are conflicts of interest among transaction advisers.

That out of the way, it is clear that Minister Amos Kimunya and the rest of Government doesn’t want to hear about Mobitelea or have anything derail the IPO which will net about 50 billion shillings ($770 million) to the Government for rebuilding.

Why start early?: That out of the way, day one is rather quiet, with not too many queues outside some stockbroker offices. But there’s almost a month to go, and Kenyans are not very time conscious initially. This will change next week, as investors will have been bombarded with questions of the process, are looking for cash or are wading though loan sharek offers from various banks and SACCO’s before placing their orders. I hope ether won’t be calls to extend the process for late-comers late in April!

Official sites: Safaricom also launched a revamped website to coincide with the IPO. There are also two official sites, for online applications and information – but the prospectus is yet to be put up on either.

Shooting blanks: All week long the Business Daily has been promising a feature edition that would help investors identify the good from the bad brokers. But when your own CEO is a director of a stockbrokerage, that’s about as serious as a member of Karen club complaining about the green on the 18th hole at Muthaiga club course. The 20 page issue issue aimed at sophisticated investors does not name names or go beyond tips and guidance on ethical stockbrokers, how to select a broker, qualities to look for in a broker (office premises, reporting frequency, staff qualifications, ownership – How??) for 20 pages full of advertisements by the same brokers. So you’ll have to be satisfied blogs, forums or other online channels to find out the good and the bad of brokers.

East African investors: CFC announced this week that they have they have crossed the 100,000 CDS (online investors) account mark. But a Uganda stockbroker does not get expect to get more than 2,000 applications owing o the passport requirements
– Meanwhile you can design a logo for EASEA – the East African Stock Exchanges Association.

Other opportunities from the papers

Jobs
– Barclays: relationship manager – SME banking, local business development manager, local business advisor. human.resources@barclays.com
– Deloitte: (2) business Analysts’ corporate financial services: hr@deloitte.co.ke by 5/5
– Insurance regulator authority; manager technical, finance manager, company secretary (legal manager), commins@skyweb.co.ke by 15/4

Safaricom IPO: Prospectus Peek

Thanks, M

At the end of it all, there are people who will buy the company regardless of what is in the prospectus or will not buy. So does it matter?

IPO pool

Domestic pool

  • 6.5 billion Shares total (runs from 26 March to 23 April)
  • Individuals (retail) 3.38 billion shares (just 52%) minimum lot is 2,000 shares.
  • Qualified institutional investors (insurers, pensions and other entities recognized by the RBA) 2.73 billion shares (42%). Minimum lot is 100,000 then 10,000 after.
  • Authorized dealers 130 million shares ( 2%) – minimum 2,000
  • Employees 260 m shares (4%) minimum is 2,000

International pool

  • 3.5 billion Shares set aside and targeted at long-term investors. (runs from 9th April to 23rd April).
  • 30 million shillings ($461,000) per order minimum and the price will be set by book building

Inside Safaricom

Balance sheet:

  • Assets of 68 billion ($1 billion) in September 2007, but with negative net assets (9b current assets, 22b current liabilities). In March 2007, it was much better (CA 10b, CL 13b)
  • The company owns no land or buildings.

P&L:

  • 9-month profit before tax of 16 billion, up from 12b a year ago – and the company is on track for 21 billion pre-tax profit in 2008.
  • Revenue has been increasing at about 30% a year: operating expenses take up 40% of revenue; while SGA take another 10% (average annual increases have been 100% for marketing, 40% admin and 30% for staff each year)

Competition & subscribers:

  • As at December ’07 the company had 9.2m subscribers, up from 5m a year before. Safaricom claims an 80% market share to Celtel’s 18% (2.1m subs).
  • But Celtel hurts: Average revenue per user (ARPU) at Dec 07 of 650 shillings (583 pre-paid, 3,968 post-paid), down from 816 shillings (705, 5,708) a year ago. This is due to adding new subscribers, with lower spending capacity in rural areas and reduction of all rates following the competition. They lost fewer customers (churn) ever since they allowed free replacement of lost SIM cards.
  • Also voice minutes (9 months): Dec 07 352 million, Dec 06 203 million
  • Operating margin Sept 07 31%, Sep 06 36%: this has dropped as a result of chasing new customers with reduced tariffs and increased marketing expenses

Staff:

  • Key managers take home about 200 million shillings a year, while all employees take home 2 billion in compensation.
  • Like at Kenya Airways, foreign partner (Vodafone) will continue to appoint CEO and Financial controller (Michael Joseph’s contract runs through mid-2009).
  • Has 1,145 employees ( ½ in customer care) in 2007, up from 535 in 2003

Odd points:

  • IPO budget includes just 5 million for PR and 2 million for advertising, but it sells itself.
  • The prospectus lists a shareholder PST who will appoint directors – cut & paste job?
  • Lead transaction advisor (Jimnah Mbaru & Co) bid just 0.05 cents for the job.
  • The dreaded word Mobitelea appears 4 times and the mysterious company owns 5% of Safaricom through (12.5% of Vodafone (K) limited’s 40%. It is mentioned in the context of a public accounts committees report (risk factor). But Standard Chartered’s 1% owner has not bothered anyone for years, so is it an issue really?

Short-term outlook:

  • Dividend in 2007 was 4 billion shillings out of 17 billion profit, 3b the year before. But that is yet to be paid out – Telkom are owed 2.4 billion but that will be used to offset some of their debts to Safaricom.
  • First AGM likely in September.
  • Weak shilling: and/or high-interest rates are bad for the company in the short term

Long-term:

  • Revenue of $677m in the last 9 months compared to $194m Celtel for 2007 – and an EBITDA of 44% to Celtel‘s 16% hmmm – whose managing Celtel? Will they dispute any of these numbers?
  • Country risk: Derives all its revenue from Kenya, so if you don’t believe in Kenya, this is not for you.
  • Competition (5 mobile companies) but competition will hurt/affect all companies.
  • Threat to banks?: M-pesa (virtual money accounts & transfer service) has been registering about 6,000 applicants per day and has 700,000 users. But Vodafone owns the M-pesa solution and Safcom pays them.

Mostly Safaricom: 2 days to IPO

Prospectus is out

but before that
– The Kenya Capital Investment Group has a nice post to guide Diaspora investors considering the Nairobi Stock Exchange (NSE) for the first time
– Which broker to use for Safaricom? Check out the Business daily on Friday March 28 for a guide to stockbrokers – the good, the bad, and the rogue. Afrika investment bank is the newest (previously was Ashbhu Securities) I-bank now.
– beyond Safaricom I Co-op bank announces plans to list, which is a great overdue addition to the NSE
– beyond Safaricom II and if the Finance Minister is by chance short in his bid to raise money from the privatization process, I’ve always maintained that he should go after another prime company; Kenya Pipeline – with pre-tax profits of Kshs. 4 billion (and EPS of 163), ripe for a split and a listing
– loans for shares: Joining equity bank in offering 100% financing is family bank, oriental and national bank so far. I may change my stance on loans for shares if I see a bank with a clear policy of loan prepayment, in case say 80% of the cash is not utilized – so an investor is not left with a loan to squander, instead of shares to sell
– Investors will be able to use pesa point ATM’s to pay for IPO shares
– Housing finance signing with Safaricom’s M-Pesa for money transfer last week shows how traditional companies like Western Union have been overtaken by changes in the banking industry.
– Writing in the Financial Standard (Tuesday) Jonathan Somen, CEO of Access Kenya (the last ICT company to be listed) calls Safaricom a good short term buy as they have performed prior to the arrival of France’s Orange (formerly Telkom Kenya) and India’s Essar (through Econet)
– Africa Alliance has opened an IPO center in Nairobi – open from 7am to 7 pm
– DYK: You have to apply to use the Kenya flag on any product? Safaricom have received permission to use it on scratch cards, the Tea Board of Kenya to display it on tea packets, and Nike International (through their lawyers) to sell it on hooded jackets!
– Pay for mail; CDS will for the first time require IPO applicants to pay Kshs. 30 for mailing each confirmed allocation.

IPO Day 3: Mostly Safaricom

– What do you know? The IPO’s official site is inactive/inaccessible a day after going live.
– For anyone new to Safaricom here’s how they became so successful

News Bits

– Safaricom has introduced an airtime voucher worth just 20 shillings (~$0.30): what does that smaller sale unit say about the economy?
– Bargains: Safaricom has halved the price of blackberry and is also selling Samba Modems for just Kshs. 3,000 ($42)
– Air-wars: Good for Kenya Airways (KQ); Delta Airlines (US) has delayed their new service from New York to Nairobi (scheduled for June 08) to start in December owing to current market conditions. Bad for KQ; Emirates will start passenger services to the Guangzhou (China) in July 2008 four times weekly and convert to daily flights from December.
– Why would Coca Cola introduce a Fanta Lite and sell it in the same bottle & packaging at 50/= instead of 40/=

Jobs: Available at Safaricom and Google, while regulator, the Capital Markets Authority is still searching for a chief executive amidst the region’s largest ever IPO.

Safaricom IPO: Day 2

Apply online: For Safaricom shares, check out the Official IPO site from Citi

Bears bleed
– NSE Bears: For the second day of the Safaricom IPO era, only 3 NSE shares rise, same as on Friday, while the rest drop or are flat.
– Farewell: To Bear Stearns sold for $2 a share, down from $170 a year ago and 7% of what it was worth on Friday.

Vultures circle:
Beware of loans for shares
– Equity Bank offering up to 80% finance for the Safaricom IPO
– Fanikisha account from Transnational Bank offering 70% finance towards the IPO

edit – We’ve been Punk’d!
Corporate blog: A big salute to Equity for breaking another milestone – presenting the first official bank blog – here’s the Equity Bank Blog. a WIP, but keep it up, stay strong, relevant, and up-to-date
Thanks JP for looking out