Zimbabwe telecoms ‘highest growth potential’

Posted on April 29, 2011

According to a recent article on CommunicationsAfrica.com, Zimbabwe has the highest telecoms growth potential in sub-Saharan Africa.

Zimbabwe telecommunications giant Econet Wireless has been rated as the telecommunications company with the highest growth potential in Sub-Saharan Africa (SSA), according to the latest Renaissance Capital report.The fact that the penetration rate in Zimbabwe still falls far below the regional average means the country’s largest mobile company has more potential for upside growth in value and earnings.

According to the report, the sector’s market capitalisation for Sub-Saharan Africa companies is expected to grow by over US$1bn this year. Econet is well placed to provide the largest chunk of this money. The market capitalisation for SSA operators currently stands at $6.393bn.

Econet is trading at EV/Subs (enterprise value over subscribers) of $190.20 against an average of $252.30 for three of its peers in the region – Celtel of Zambia, MTN of South Africa and Safaricom of Kenya.

It is also grossly undervalued, using the price earnings ration although its EV/EBITDA (enterprise value over earnings before interest, taxes, depreciation and amortisation) is almost in line with the regional average of $4.50.

“We think investors should stick to markets with more favourable regulations, and stocks that pay high dividends.

“Econet is the highest growth stock in our SSA telecoms universe and provides exposure to a relatively healthy telecoms market,” said the report.

Last year, Econet traded a volume of about 19 million shares valued at $92mn or 23 per cent of the total trades on the Zimbabwe Stock Exchange. The report, however, noted that voice revenues will remain under pressure over the next one and half years and recommended operators to expand in other telecoms segments.

In Zimbabwe, internet penetration is expected to grow substantially, given that Zimbabwe has always been among the top users of internet, even when the economy was deteriorating. Internet World Stats ranked Zimbabwe at number 10 in Africa with 1.4mn people using the World Wide Web in June 2009 – only four months after dollarisation. At that time Information Communication Technology products were still taxed and were landing in the country at exorbitant prices.

“Given low broadband penetration levels in SSA (around 1 per cent on average, excluding South Africa) and the region’s lack of fixed line infrastructure, we think mobile operators will be the major beneficiaries of demand growth for data.” Econet is the first local mobile company to launch national broadband services and has a voice subscriber base of just over five million, which represents about 70 per cent the mobile phone market share.

Its next competitor, Telecel, has 18 per cent and the third operator, NetOne, accounts for the remainder, as of November last year.

Econet has been offering data services to 25,000 subscribers at a fixed monthly charge of $25 for almost two years. But in October last year it opened up the service to interested users following the launch of mobile broadband.

A month after the launch, the subscriber level increased to 432,312 and the tariff is now based on usage, with the lowest data bundle of 5Mb selling for $1.

The company embarked on a countrywide retail rollout to facilitate the distribution of handsets, accessories and laptops. Econet has so far signed a reseller agreement with Apple with a view to start selling Apple products such as iPhones, iPads and Macbooks which are targeted at the high income earners.

By Barnabas Thondhlana

The article makes some interesting points but focuses its attention almost exclusively in the potential that Econet has for growth. The statistics and financials that they quote, are presumably extracted from Econet’s recently released annual results, which themselves make for interesting reading.

The article argues that Econet which is trading at EV/Subs (enterprise value over subscribers) of $190.20 against an average of $252.30 for three of its peers in the region – Celtel of Zambia, MTN of South Africa and Safaricom of Kenya, is seriously undervalued.

We tend to agree and would suggest that the observations made in the article can be applied to the industry in Zimbabwe as a whole, which is good news for us as we continue to play our part in developing this sector.

Anyway, read the article and let us know what you think!


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