Econet share price still undervalued

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Econet management squandered another opportunity to prove to the market their business is worth much higher than its current market price, market analysts have said.

Reviewing results in which the country’s number one mobile network by subscribers posted a good set of results in which it made a net profit of $74 million, market analysts aggregated by financial information service Zfn said the Econet share has been the biggest disappointment of 2011 with its sluggish movement despite reporting good financial results four halves in succession.

“That the numbers from the company have been good and deserve better market valuations is undeniable, but the tendency by management to needlessly conceal certain pieces of information continues to nurture market suspicions on the business.

For instance, what was the rationale for Kris Chirairo’s reluctance to disclose interconnection fees due from other operators?” asked the analysts.

Payment of 3,7 times covered dividend per share of 11,8c in four tranches was not an “innovative way of paying a dividend” as Douglas Mboweni wanted the analysts to believe, but was simply cash-flow management strategies.

The dilutive activities particularly the monthly issue of 352 693 Econet shares (4,2m shares) to EWG as repayment of the equipment supply agreement’s $93m obligation continue to impact the share price negatively.

This, together with share options schemes have seen another one million shares added in the past month, and in nine months to September, the number of shares on the register rose to 96,2m from 90,73m at the beginning of the year, an increase of 6%.

The highlight of the briefing was the introduction of Eco-cash, a good product, whose initial weakness is that it is expensively priced with fees much higher than bank charges which are also much higher.

This could be a deterrent to potential users and likely to work against the intended retention of subscribers. Safaricom’s M-PESA, whose concept inspired Eco-cash, charges on average 1% for transacting while for Eco-cash the maximum charge is 7% of the amount.

Analysts said the company still does not deserve a trailing price to earnings ratio (PE) of 4,4x it is trading on right now especially when other telecoms in the region are around 11x. The briefing was supposed to be an opportunity for management to correct that anomaly, but it did not seem like they did that well enough.

Even a lowly trailing PE of 7x could take the share price above $6 while the regional average PE implies a share price above $11 which is a pipedream considering the current market price of $3,99. The question now is, what will be the catalyst to drive Econet to its proper value?