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Roberta Katunga, Senior Business Reporter
STOCKBROKERS have recommended a buy for Econet Wireless’ shares on the local bourse despite a 17,7 percent drop in revenue for the half year ended 31 August 2015, as it still remains the most dominant player in the country’s telecommunications sector.
Econet holds a 72 percent market share in the mobile telephone sector. According to Lynton-Edwards stockbrokers, Econet is well capitalised and diversified to take advantage of growth opportunities in the future.
“Our recommendation to investors is to buy on price weakness. We believe the Group’s long term growth prospects remain intact and the recovery of Steward Bank also has a positive effect on net margins,” Lynton Edwards said.
In a report, the stockbrokers said the revenue decline was likely to continue through the second half of 2016, forecasting a further 21,29 percent decline.
“We expect the current revenue decline to carry through the second half of FY16. We forecast a 21,29 percent decline in revenue in FY16,” said the stockbrokers adding that while Econet continued to bring new products to the market, these would not result in revenue growth in the short to medium term.
The stockbrokers were of the view that diversification of revenue would help reduce the rate of revenue decline.
“EBITDA margins can, however, be improved through the cost cutting initiatives and a target range of between 38 and 40 percent is not demanding. We forecast FY16 profit after tax to decline by 49,56 percent to $35,4 million.
“In the short term a key spot for value accretion is cost efficiency and the resultant impact on margins. We also observe that the major source of net margin pressure has been below the EBITDA level, easing finance costs combined with cost reduction could be a major catalyst to a positive margin outlook for Econet in the short term,” Lynton- Edwards said.
The telecoms company released its unaudited financial results last week showing revenue for the period, at $323 million, which was lower than $392 million recorded the prior year comparative.
According to Econet, performance for the period under review was weighed down by a 20 percent decline in voice revenue on the back of a 36 percent tariff reduction as well as the general economic decline in the country.
However, growth in overlay services of 29,1 percent was not enough to compensate for the declining voice revenue.
“Non-voice revenue was up a marginal 5,35 percent to $118 million with broadband revenue coming down by 0,9 percent to $52 million.
Eco Cash contributed $35 million to revenue, up 29,62 percent from a $27 million contribution prior year,” said Econet.
According to analysts, while revenue from voice is coming down, the limited growth in non-voice revenue has not been able to compensate for the decline in voice revenue.
The increased contribution to total revenue by data and overlay services to 27 percent from 23 percent was mainly as a result of the decline in voice revenue than growth of the former.
The results showed that voice revenue was down by 20 percent, broadband revenue was also down by 0,9 percent while overlay services were up by just 1,8 percent.
Eco Cash recorded a 32 percent growth in customers to 4,9 million while the transactions value increased by 24 percent to $3,1 billion.
Customers for broadband also went up by 49 percent to 7 million although revenue was down 0,9 percent to $52 million.
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