Econet poised for further earnings growth

By eBusiness Weekly | 19 Jul 2019 at 09:47hrs
Telecoms giant, Econet Wireless Zimbabwe, is poised for further earnings growth in the financial year 2020 driven by mobile data consumption that is anticipated to remain "fairly robust" going forward.

While voice and SMS revenue segments have been declining in line with global trends, growth is expected to stem from use of mobile data while mobile phone usage should also play a key role in earnings.

This is anticipated to further increase against other media platforms such as television and radio sets and laptops as the market opt for more portable gadgets like smart mobile phones.

Regulator, Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) has also pointed out that data and internet services are taking over as the main driver for the sector growth.

During the financial year 2019, Econet reported a revenue growth of 36 percent year on year to $1,14 billion from $831,6 million in the previous year with top-line revenue including Cassava's $328,1 million revenue for the eight-month period to November 1, 2018.

This implies a 40 percent growth in revenue (under continuing operations) to $808,7 million from $573,8 million in the prior year for the telecoms business.

Brokerage firm, IH Securities sees the telecoms giant maintaining the growth trajectory, albeit the challenging economic environment that has posed a threat to several companies.

"Going forward, although voice and SMS revenue segments may continue to decline as the global trends predict, we anticipate revenue growth to remain hinged on mobile data consumption, which is anticipated to remain fairly robust, given elevated Wi-Fi costs and current headwinds in ZESA's power supply and distribution.

"The country is currently facing debilitating power shortages as Zimbabwe's largest power station by output, Kariba South hydro power station, is unable to generate electricity due to receded water levels caused by the El-Nino induced drought, while foreign currency constraints limit imports.

"Thus, we believe that Econet's growth in the short-term will be spurred by an increase in mobile phone usage versus other media platforms such as TVs, PCs and radio given fuel shortages and exorbitant prices of solar gadgets," said IH.

The country has been experiencing erratic power supplies resulting in network connectivity challenges. But the telecoms firm has managed to offset some challenges caused by poor power supplies due to the availability of uninterrupted renewable energy at base stations and other operating sites, leading to reduced energy costs.

The telecoms firm's Distributed Power Africa (DPA), a green energy company has experienced progress in the past financial year with projects totalling 3MW out of 7MW already being commissioned.

Another 116 solar powered sites have also been commissioned, including a 466KW solar power plant at the Willowvale industrial complex — the largest commercial and industrial carport and roof mount installation to be deployed in the country, which thereby reduces fuel consumption and carbon dioxide emissions.

Despite the various growth opportunities available for Econet, IH sees the regulatory landscape remaining a challenge for the telecoms sector and business in general.

A potential increase in taxation following tariff increases may pose a knock on effect on the business.

This week, Econet reviewed its data bundle and SMS pricing by between 30 and 50 percent in a move seen by analysts as a way to align tariffs with the prevailing economic environment.

The new data tariffs come as the value of the local currency has significantly weakened by more than 600 percent since the last tariff increase in April this year.

IH contends Econet will maintain the momentum into 2020 as the unbundling and separate listing of Cassava should increase the strategic focus on the business' TMT strategy.

The brokerage firm maintains a hold recommendation for the stock.



WhatsApp Newsletter

Follow us

Latest Headlines