Safaricom is up 5.6% in the last week to KES29.20, putting it 6% above our current TP of KES27.42. Possible upside potential for Safaricom in our view will be largely generated by continued uptake of Fuliza, an M-Pesa overdraft facility which was launched in January 2019. By May 2019, Fuliza had reached KES45bn in transaction value.
Fuliza levies a 1% access fee per transaction and a daily maintenance fee for each day the overdraft goes unpaid. Below is a table showing the daily maintenance fee, graduated on transaction value.
Table 1: Fuliza daily maintenance fee
Fuliza customers take KES600 on average, with a repayment period of three days. This implies an effective transaction charge of 4% (1% access fee + daily maintenance charge). Based on a transaction value of KES45bn, this would imply the total commissions would have been KES1.35bn. As Safaricom retains 40% of the fees – with CBA and KCB taking the balance – this would mean Safaricom would have made an estimated KES720mn in the period. A similar trajectory of Fuliza uptake in FY20 would see Safaricom earn an estimated KES1.4bn from the service. As we don't anticipate significant costs relating to this service, there should be a healthy impact on the bottom line.
However, we note that the upside from Fuliza may not sufficiently offset downside risk from weak mobile data revenue growth due to increased competition from Airtel. Moreover, with FY20 EBIT guidance 8% below our current estimates, we are conservative on the effect of Fuliza on our target price. We thus maintain our HOLD recommendation on Safaricom.