ECONET Wireless Zimbabwe’s revenue is set to tumble 8,9% year-on-year to $584 million in 2017 before waning further in 2018 on the back of economic headwinds and regulatory interventions, stockbrokers IH Securities has projected.
BY FIDELITY MHLANGA
In an update after Econet successfully raised $130 million through a rights offer of ordinary shares and linked debentures to pay its foreign obligations, the equity research firm said liquidity challenges, regulatory interventions and low disposable income were likely to persist in the medium-term.
“We forecast a decline in revenue of 8,9% y/y [year on year] for FY17 [full year] to $584 million and a further 0,7% y/y decline for FY18 to $580 million. Post FY18, we anticipate continuous innovation, and greater contribution from EcoCash and broadband, will uplift revenue beyond the $600 million mark, growing CAGR [compound annual growth rate] 2% to 2022,” IH said.
IH added that cash flow was envisaged to remain affirmative, but there was no anticipated redemption of the proposed debenture in the medium-term as the liquidity crisis inhibiting remittance of forex abroad was expected to continue.
“While we expect sturdy EBITDA [earnings before interest taxation, deductions and amortisation] margins going forward, with slight improvements initially due to continuous cost rationalisation efforts, our net income estimate for FY18 at $50,5 million is a 56,6% y/y jump from our FY17 estimate of $32,9 m (-17.9% y/y),” it said.
“The rapid jump in FY18 can be attributed to the lower effective interest rate assumed (7,5%) as well as lower debt levels. Cash flows are anticipated to remain positive, but we do not anticipate redemption of the proposed debenture in the medium-term nor a rapid increase in the dividend yield, as the current liquidity crisis preventing the remittance of forex abroad is expected to continue.”
The firm said that given major shareholder Econet Global had exceeded 35%, the move triggers a mandatory offer to minorities.
IH Securities said Econet has since expanded into new areas (over the top ) in a bid to diversify its revenue streams, but these have lower margins hence an impact on profitability further accompanied by the general migration from higher margin voice product to data solutions.
“With the voice and SMS segment expected to continue on a downward trajectory, we expect management to focus on broadband and EcoCash during second half of 2017. In the first half, Econet successfully concluded a network modernisation project, resulting in the deployment of over 400 new LTE sites as well as upgrades to over 250 3G sites,” the equity firm said.