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Sub-Saharan African (SSA) telcos offer strong growth underpinned by increasing mobile and
internet broadband penetration rates.
Slowing GDP growth, lower commodity prices, inflation and currency risks are likely to restrict
corporate earnings growth in SSA in the coming quarters. However, even in a less-favourable
economic environment, we expect some telcos to continue to increase earnings as their structural
growth drivers are intact.
Affordability of handsets and tariffs continues to improve, as does coverage. In 2009 and 2010,
major infrastructure improvements should be the catalyst for earnings growth as some parts of
Africa will be connected by fibre optic cables for the first time, which we believe should drive a
boom in internet broadband.
In this report, we have looked at telcos in Nigeria, Francophone West Africa, Kenya and Zambia. We
initiate coverage of: AccessKenya (Overweight (V), target price KES31), Celtel Zambia (Underweight
(V), target price ZKW285), Safaricom (Underweight (V), target price KES1.9), Sonatel (Overweight
(V), target price CFA194,000) and Starcomms (Overweight (V), target price NGN5.4).
Sub-Saharan Telcos
Sub-Saharan African telcos have achieved strong growth by
increasing mobile coverage. Mobile penetration is rising and we
expect this to continue even if GDP growth slows. We therefore
expect telco stocks to perform better than SSA equities as a whole,
which are likely to suffer due to funding issues and the global
slowdown. As voice is becoming commoditised in some markets, we
prefer companies exposed to internet broadband as new infrastructure
coming on stream in 2009 should drive a boom in internet demand.
Mobile growth story to deliver even in a slowing economy
We expect the increasing mobile coverage and penetration, as well as the new infrastructure coming on stream
next year, to continue to deliver even in a less favourable economic environment. SSA GDP growth is
expected to slow due to lower commodity prices, funding issues and the consequences of the global slowdown.
As a result, we believe SSA equities are likely to see earnings slowing and rising funding and currency risks.
We see telcos performing better than other equities as they benefit from structural growth.
Voice is getting commoditised and voice margins could be under pressure.
We prefer stocks exposed to internet broadband. Some parts of Africa are getting connected to fibre
optic for the first time which should drive a boom in internet demand.
Development funds and export credit agencies are key sources of funding for SSA telecom
infrastructure and this type of financing is relatively stable. As one of the most profitable and fastestgrowing
sectors in SSA, we believe telecoms should also continue to attract private funding.
Mobile operators currently dominate the telecom sector in Sub-Saharan Africa (SSA) as fixed-lines
remain undeveloped in most markets due to poor management by most state-owned fixed-line
monopolies, difficult geographies and high levels of piracy. Mobile networks are easier to expand and
operate and are by far the broadest and most reliable communication infrastructure in most SSA
countries. We therefore expect mobile operators to use their infrastructure to take the largest share of the
growth in internet and other non-voice services.
SSA has been the fastest-growing mobile market in the world with penetration rising from a few percent
in 2002 to more than 27% today (number of active SIM cards per capita) according to ITU data and
HSBC estimates. Declining tariffs and handsets have enabled millions of people to access communication
services for the first time. There is still large growth potential and we expect penetration to double to 60%
by 2012 on the back of tariffs and handsets getting even cheaper and broader network coverage.
In SSA, a large majority of subscribers live on the equivalent of a few US dollars per day and spend only
a little on a phone. SSA markets have nonetheless been highly profitable for large operators that have
earned EBITDA margins of up to 60%. The high margins and substantial growth potential have attracted
many operators from more mature markets and competition is increasing in most markets.
Operators across the region are ramping up capacity to realise as much of this potential growth as
possible. The competition for acquiring assets or market share increases as most of the mobile market is
already shared between the big three pan-African players: MTN, Vodacom+Vodafone and Zain. Global
operators such as France Telecom or Millicom are investing substantially to increase their presence in
SSA. Regional SSA players in, for example, Nigeria or South Africa are also increasing investment in
mobile, and in internet as they see strong potential in their home market or the rest of SSA. The deal flow
has been substantial in the region recently as the few remaining independent players are being acquired.
We expect this flow to be sustained despite the slowdown in SSA as the growth potential remains
attractive and large players have sufficient resources for acquisitions in SSA.
We see internet broadband as the next growth area for
SSA telcos
The penetration rate for internet has been even lower than for mobile with only 3.7% of the population
using the internet and little more than 1% having a subscription. This extremely low level is due to a low
computer literacy rate as well as a lack of infrastructure and relevant local content. The situation is set to
improve. Africa, which today has only two fibre-optic links to other continents, will be connected to
Europe, the Middle East and Asia through multiple fibre-optic submarine cables coming on stream in
2009 and 2010 (Glo-1, SEACOM, TEAMS and EASSy). These cables will multiply the available
bandwidth by up to 2,000x in some regions and will underpin strong growth in internet usage in our view.
Operators in Kenya, Nigeria and other countries are building broadband capacity as they believe the latent
demand is huge. In SSA, we believe that mobile operators are likely to benefit the most from any internet
growth are as these are better placed than ISPs to serve the mass market thanks to their larger
infrastructure (including large terrestrial backhauls) and broader distribution networks.
Internet broadband growth should also be supported by cheaper equipment for operators and cheaper PCs
for users. Manufacturers have realised the strong growth potential in SSA, and are building cheaper
equipment better adapted for use in African countries (large geographic areas, limited and unreliable grid)
to supply latent demand. The number of potential retail internet subscribers is currently limited as PCs are
too expensive for most people. However, we expect the situation to improve with governments, NGOs
and recently installed local production in West Africa, all striving to reduce the price of PCs.
目录
Summary 1
Sub-Saharan African telecom
markets 9
Kenyan telecom market 21
Safaricom 36
AccessKenya 43
Nigerian telecom market 49
Starcomms 59
Celtel Zambia 67
Sonatel 75
Appendix 82
Disclosure appendix 85
Disclaimer 88
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