Listed mobile network operator Econet, is projected to see improved operational efficiencies and earnings performance for financial year 2024 on the back of its capital investments into modernising network infrastructure.
Econet is currently the biggest mobile network operator in the country, ahead of peers NetOne and Telecel.
Market watchers opine that the company’s commitment towards network upgrades, infrastructure development and diversity in product offering will bear fruit in the current financial year and going ahead. The company increased its investment level to 24 percent of revenue from five percent in the previous year, which is expected to result in enhanced network infrastructure, thus meeting market needs and expectations.
During the previous financial year, Econet embarked on a 5G network expansion to support the digitalisation drive in Zimbabwe, a phenomenon that has swept global economies given its potential to transform economies.
“This increased investment level is expected to broaden and diversify the Group’s service offering, improving capacity and coverage,” said IH Securities in an earnings review for the telecoms giant.
The group also commissioned 80 new base stations providing additional coverage and capacity to meet the growing demand for both voice and data traffic. During financial year 2023, voice and data volumes increased by 19 percent and 58 percent respectively.
In addition, the group is expected to recover from foreign exchange losses following redemption of debentures. During the first quarter of financial year 2024, Econet successfully raised the US$30,3 million that was required to redeem its debentures following a Rights Offer.
“Consequently, we expect the foreign exchange losses that have plagued the group for the past few years to taper off, positively impacting profitability to FY24. According to the Postal, Regulatory Telecommunications Authority of Zimbabwe (POTRAZ), Econet held 72 percent of market share in both mobile subscriptions and internet and data traffic as at June 30, 2023,” said IH Securities.
However, the regulator has also noted that voice and data tariffs remain at discounts of 58 percent and 88 percent, respectively, compared to regional prices. These sub-economic tariffs will likely continue to weigh down on the group’s revenue generation to financial year 2024, according to IH Securities.
Coupled with the economic challenges characterised by exchange rate volatility, inflationary pressures and low consumer spending, total revenue for Econet is projected to close the financial year 24 percent lower to US$369,7 million. This comes as inflation continues to outpace tariff increases.
“Our view is that earnings before interest, tax, depreciation and amortisation (EBITDA) margin will likely remain flat at 40 percent in FY24 with a forecasted net income of US$17,9 million,” said IH Securities.
The stockbroking firm sees Econet reach a targeted price of US22 cents which is an upside of 163 percent.
Said IH Securities: “Notwithstanding significant headwinds, the company seems oversold at current levels. We therefore place a BUY recommendation on the stock.” – Herald