Wednesday, March 26, 2008

Safaricom IPO: Prospectus Peek

Thanks M

At the end of it all there are people who will but 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 lost 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 price will be set by book building

Inside Safaricom
Balance sheet assets of 68 billion $1 billion) in September 2007, but with negative nets (current assets 9b, 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 company is on track for 21 billion pre-tax profit in 2008.
- Revenue has been increasing at abut 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), 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 reduced all rates following 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 contact 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
- 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.

18 comments:

pesa tu said...

Hi Banks: where's the prospectus?

coldtusker said...

There is a copy available at www.investinginafrica.net

You do have to register on the site.

Maishinski said...
This comment has been removed by the author.
MainaT said...

Delivery vs payment should be considered if you are applying for a certain of shares and can provide some guarantee. After all, this what the lead/sponsoring brokers are there for. To take up the slack.
Very deceptive on the retail investors. 3.4bn shares are surefire way of getting an oversubscription.

Maishinski said...

Quick thoughts (updated):

Seems Safaricom has reasonably good fundamentals. It's not a sure shot a' la "Warren Buffet", but it seems to have a healthy cash flow and some potentially good mid-term prospects.

The balance sheet looks healthy to me. Long term business outlook is rather cloudy though. Competition is eyeing the pie and imitators are bound to kick in. A squeeze on the margins might bring this mighty lion down to its knees.

On the other hand barriers to entry keep the competition at bay. Additionally, Telcom is such a mess that it might take about 5-10 years for it to be a threat to Safaricom.

Safaricom market dominance is almost assured for the next decade or so. Provided they stay grounded - and ahead of the game.

Prediction for Long term investors... How long is long term? I can bet 3-4 years is a safe bet for the risk averse foreigners. Share price will likely peak in 2010 and then start gradually falling till they hit rock bottom in 2012 as foreign and local speculators exit in panic ahead of elections... The risk savvy will be hoping for a bull run in 2013...

But that's not why the prospectus is in demand!

Most people just want to know the allocation criteria and the odds of getting a reasonable allocation.

The IPO "advisors" should deal with the refund problems once and for all. It's a pain in the neck for everyone!

Anyone with a bank guarantee should be able to pay after allocation!

So many people will take loans only to be refunded 90% of their IPO money after an oversubscription... which the bank will charge interest and prepayment penalties.

This will hurt many un-informed people because the profit from selling their alloted shares will most likely not cover the cost of borrowing from the banks!

Further more, what is the value of processing millions of refund cheques when it can be avoided????

The way the refund issue has been brushed aside is just narrow minded and crazy.

Like someone once said, "Madness is doing the same thing over and over again.. expecting different results."

Let's all lobby for sanity in IPOs!!

Cheers.

mali said...

"Mobitelea's real owners are hidden behind two nominee firms, Guernsey-registered Mercator Nominees Ltd and Mercator Trustees Ltd. The directors are named as Anson Ltd and Cabot Ltd, based in Anguilla and Antigua."
Most of them doggy companies are registered like mobitelea above. Why, nobody can touch them? What we need to know is who owns Anson and Cabot and next, the snake will be out of the hole.
So to Kibaki and Raila, who owns these thieving companies and why are they dealing from behind the scenes?

Kye' said...

No declaring who Mobitela is, No Safaricom. ODM should stop the sale of these shares. We've been robbed many times and we are fed up. We can not continue to enrich the same thugs who have been stealing from us for many years. Why sell in a hurry?

mya said...

Sad how Kimunya and co. wants us to end up with a handful shares. Is this right? We've build this company and its pathetic how they thank us - what has been put aside for retail investors is disgusting. Foreign investors should buy from the market.

Mashatall said...

We all know who Mobitelea is, and politicians should stop fooling the ordinary mwananchi ati they are looking out for their interests. The fact is once Moi Biwott telecommunications east africa (Mobitelea) decide to give them part of their stake post IPO, then all this politicians yapping will end. We all know how the games are played at that level and thats why ODM wanted to stop the sale so that they could dispose it once they come to power, its all about the BENJAMINS!

Raila4life said...

Regarding the Mobitelea Nonsense, according to the prospectus, Mobitelea shares are part of the Vodaphone shareholding - which is NOT being offered for sale.

ALL proceeds from the sale of Shares accrue to the government of KENYA which is now composed of ODM and PNU.

What is all the hullabaloo about?

And the issue of "5bob = undervaluation" displays a startling level of ignorance from a party that wants th Finance Ministry docket!

There seems to be a hidden agenda from those who want to stop the IPO. Is it because of the cabinet stalemate? Most likely.

Í am an active ODM supporter - but now I'm wondering if our politicians strategy is to sacrifice our people and country in order to get what they want?

Are the Cabinet salaries so important that we deny Kenyans this opportunity for healing and reconcilliation?

Rather than resorting to multiple posts (spamming) - please provide clear, honest and rational arguments that investors and Kenyans will understand.

(e.g. "Anyang Nyongo is broke because of election and post election "activities" and now wants more time to get a loan to buy shares so please delay the IPO OR ELSE...!!!")

inspectordanger said...

The shares allocated to retail investors is painful. Why not do away with foreign investors allotment and give them to retail investors. 3.4 billion share for Kenyans, Ugandans, Tanzanians, Rwandese, Burundians etc... come on we can do better than this.

Kimunya is ripping us off but to quote somebody I can't remember his name " If you can't fight the rape, you rather lie down and enjoy it". Our making noise will not stop Kimunya and his corruption cronies from aborting the sale. So we better just take part in it and not be left out.

ODM is right in its objection, and I am also a staunch ODM supporter. But why accent to the the sale and then negate that decision when there is a stalemate in cabinet sharing? Either way, we are being denied a peaceful environment and opportunity to prosper. Shame on ODM and PNU

bankelele said...

Pesa tu: see CT, the whole thing should be available tomorrow or from the official site

Coldtusker: hope the official site will handle traffic

MainaT: they have gone over this before, and for retail, cash still upfront. Yes it destabilized the banking system and leads to refunds, but unless M-pesa is used, this is the only way for now

Maishinski: best performing company in Kenya’s’ history! Long term is also good and they have the infrastructure in place. They will make money from interconnection and renting out infrastructure to other mobile companies for years
- Long term is at least 3 years. But given the volume of shares, I see a post-IPO dip (like KQ a decade ago).
- On refunds, they can work on fixing the problem with a smaller IPO, not this one. It’s a shame to refund 90% of cash after 3 months, and have to start paying a loan

Mali: see Kroll report at wikileaks

Kye: there’s a bit of politics now, too late in the process for it to stop. They could have gone to court last week if they were serious

Mya: the local demand for the IPO is insatiable and creating 10 billion shares, was as big a step as they could go. Also Kimunya has said they will ‘dip’ into the international pool if there’s; a massive local over-subscription

Mashatall: we know who they are from kroll. But to me it’s a non-issue. It is something that Vodafone (UK) shareholders and UK anti-corruption investigators should look into. But like with BAE, will they bother?

Raila4life: Anyang ‘mis-spoke’ – like Hilary Clinton on the 5/= valuation

Inspectordanger: Its’ shocking that 1.7 million ‘retail’ investors from east Africa can create over-subscription. And there are already about 1 million Kenyan CDS accounts

Anyangski_Nyongozzle said...

BOYCOTT THIS IPO! IT IS COMPLETELY WRONG AND FULL OF CORRUPTION, WITCHRAFT AND EVIL SPIRITS.

EVEN ANYANG NYONGO - A WHOLE PFROFESSOR WHO HAS READ EVERY BOOK IN KENYA UNTIL FINIS - HE SAYS IT IS EVIL.

EVEN THE SPIRITS SAY MOBITELEA IS EATING THE IPO. WHAT IS THIS IPO ANYWAY? EVERY CITIZEN SHOULD BE GIVEN THE IPO - WHY IS MOBITELEA EATING ALONE?

THEY HAVE HIRED A POWERFUL SOCERER TO PUT ALL SHARES ON THE INTERNET. HOW CAN AN IPO BE APPLIED ONLINE? IT HAS NEVER HAPPENED IN KENYA. THEREFORE IT MUST BE CORRUPTION AND WICHRAFT.

WATAWEKA 10 BILLION SHARES KWA COMPUTA NAMNA GANI? ITATOSHA KWELI? IKO UCHAWI! SIAMINI. KWANI SHARE MOJA INA KILO NGAPI? KOMPUTA ITAKUWA KUBWA KULIKO NYUMBA KUBWA?

IF IPO PROCEEDS, WE WILL NOT SEND OUR CHILDREN TO SCHOOL! THESE SCHOOLS ARE FULL OF PNU EVIL WITCHCRAFT. NYONGO WENT TO SCHOOL AND FINIS AND CONTINUE AND FINIS AGAIN. HE HAS READ FOR ALL MY CHILDREN SO WHY PAY SKULL FEES TO PNU AND MOBITELEA? EVIL!

BOYCOTT!!! WE WILL GET CIVIL SERVICE JOBS FOR FREE - NO QUALIFICASON NEEDED. KILA MTU ATAPATA KAZI. EVEN RENT HAKUTAKUWA. TUTAKULA SISI SOTE!

KWANINI MOBITELEA ANAKULA PEKE YAKE? MOBITELEA IS RIGGING THE IPO JUST LIKE PNU STOLE THE ELECTIONS. THEY WILL STEAL THE IPO. ALREADY IPO BALLOT BOXES HAVE BEEN MOBILIZED UNDER COVER OF DARKNESS TO VARIOUS STATSIONS IN CENTRAL KENYA. RIGGING!

WHO IS MOBITELA ANYWAY AND WHY IS HE EATING THE IPO? WE SHALL TAKE TO THE STREETS AGAINST HIM IF HE CONTINUES. OUR NEXT IPO FOR SAFARICOM IN 2012 WILL BE BOUGHT FROM USA. T WILL BE BIGGER THAN THIS ONE AND WILL HAVE MEDIATORS TO PREVENT RIGGING.

BOYCOTT!

Anonymous said...

Nyongizzle, who is the real mafia, is it the thirsty Kenyans who refuse to drink water because the glass is half empty and prefer to break their glass and everyone elses - at the risk of losing everything (self destructive mentality) - e.g. those responsible for violence and chaos.

or

the kenyans who see the glass as half FULL and realize could have been empty hence they look for ways and opportunities to fill the gap (constructive mentality) e.g. Raila when he agreed to share power.

With "leaders" like Anyang Nyongo, how can Kenyans expect to break the curse of poverty?

I am sick and tired of self destructive politics!

Anonymous said...

RELIABLE DISGRUNTLED PNU- SOURCES SAY THAT ALL THE PNU CREDITORS WERE TOLD
THAT THEY WOULD BE PAID AFTER THE SALE OF THE SAFARICOM SHARES??THAT MEANS THE FINANCE MINISTER WAS VERY SURE THAT THIS SALE WAS GOING TO GO THROUGH!!!I REMEMBER READING SOMEWHERE IN THE NEWS REGARDING CREDITORS PARKED AT THE PNU OFFICE IN NAIROBI!! WHAT IS DISTURBING THE PNU SOURCE IS THAT ONE OF THE CREDITORS ARE THE MUNGIKI MEMBERS GANG- DAY OF THE DEMONSTRATION DOWN TOWN !!SOME WENT TO THE PNU HEAD QUARTERS ASKING FOR PAYMENTS AND PNU STAFF THERE WERE VERY CONFUSED!! WHEN ASKED PAYMENT FOR WHAT- THERE ANSWER WAS ASK YOUR BOSSES!! when they tried to ask they were told to mind their own business!!!

THIS TO ME IS SCARY - ARE KENYANS BUYING SHARES TO PAY FOR THE GENOCIDE THE MUNGIKI GANG CAUSED IN NAKURU AND NAIVASHA???

IhaveNoTribe said...

Some ODM leaders have no ethics whatsoever.

They will do whatever it takes spreading lies and destroying whatver they have to in order to get what they want.

Remember the King Solomon? ODM is the woman who would rather kill the baby (Kenya) than have it handed over to her rival.

As long as these kind of people exist, Kenya will always be in great danger.

Please Kenyans, wake up! Let us promote constructive values that help us overcome our challenges! Take your children to school. Teach them that its wrong to destroy property. Teach them tolerance and respect for one another. Most of all show them the beauty of their country and make them proud and patriotic.

Say "NO!" to Politics of Self Destruction!

jomet said...

Banks-
What is this ratio for Safcom vs Celtel:

EBITDA (or as close as it gets)/Assets?

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