UPDATE 2-Safaricom sees strong end to year as price war ebbs

Thu Nov 8, 2012 11:54am EST

* CEO sees 12 pct revenue growth in FY

* Safaricom's H1, 2011 had slumped on stiff price war

* Share price likely to rise further - analysts

By Beatrice Gachenge

NAIROBI, Nov 8 (Reuters) - Kenya's top telecoms operator, Safaricom forecast a strong full-year performance on Thursday after higher tariffs and the end of a punishing price war helped its first-half profits to recover.

The company, which is 40 percent owned by Britain's Vodafone , said it plans to expand its network to reach even more voice and data users after reporting a 113 percent rise in pretax profit to 11.5 billion shillings ($134.66 million).

Revenue for the company's half-year period to September rose 19 percent to 59.1 billion shillings.

"On (full year) revenue growth, we expect that to be in the low double digits," Bob Collymore, Safaricom's chief executive told Reuters, pegging the growth at about 12 percent.

"We've recovered from the damaging price wars and are delighted to deliver very impressive results," said Collymore.  Safaricom found itself in a tight situation in 2010 when Indian operator Bharti Airtel entered the market by acquiring Zain's Africa assets and cut prices sharply, causing a price war in the sector.

Collymore had earlier this year projected low to middle single digit revenue growth for the company's full year.

Analysts said revenue growth would rise in the second half on improved economic growth, and a steady drop in interest rates, which was expected to increase liquidity in the market.

"I expect it (revenue) to continue accelerating going towards the end of the year," said Samuel Gichohi, a research analyst at NIC Capital.

Safaricom has about 79 percent of Kenya's mobile subscribers, and plans to expand its network to lure more users. The firm's customer numbers rose 7 percent to about 19 million during the period.

"Our plan is to roll out about 500 kilometres a year (of fibre optic) and the cost is anticipated to be 2 billion shillings a year, for the next five years," Collymore said, adding the funds would be generated internally.

Voice revenue grew by 19 percent to 37.4 billion shillings, while its non-voice services, which include its cash cow, the money transfer service M-Pesa, and data, rose 28 percent to 18.7 billion shillings helped by higher prices introduced last year.

Safaricom's earnings before interest, taxes, depreciation and amortisation (EBITDA) margin rose 51 percent to 22.3 billion shillings in the same period a year ago.

The margin is seen as a key measure of performance in businesses that suffer from high rates of depreciation.

Safaricom's shares closed unchanged from Wednesday at 4.45 shillings. The company released the results after the stock market had closed.

The share price had risen in the last few weeks after investors anticipated strong results.

Analysts welcomed the performance.

"We expected profits to come in higher because of the low base in the same period last year and increased product prices," said Brenda Kithinji, an analyst at Standard Investment Bank.

"Investors are now expecting a stronger full year and we may see some excitement on the shares tomorrow," she said.

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