Econet’s ability to retool curtailed: Researchers

Econet Wireless Zimbabwe

THE depreciation of the local currency will continue to have a substantial impact on Econet Wireless Zimbabwe’s ability to invest in new equipment given that the company imports hardware and software for operational needs, according to researchers at Inter Horizon Securities (IH).

In February, the Zimdollar fell by 10% to the greenback on the official auction market, while the depreciation was slightly sharper on the parallel market at 10,68%.

As a result, the parallel rate premium grew by 0,8 percentage points. According to experts, strict monetary policy measures, such as high interest rates and the ongoing issuance of gold coins, support the relative stability of the parallel market rate.

In a recent research note, IH said for years, the telecommunications giant’s financial performance had been weighed down by foreign exchange losses stemming from foreign currency-denominated obligations and debentures.

“With the paying out of debentures taking place in April 2023, we expect this income statement line to register significant decline in FY24 (fiscal year 2024),” the note read in part.

The company has outstanding United States dollar denominated debentures that were issued in March 2017. These debentures are due for redemption in April 2023. The firm said it would, in due course, make a substantive announcement to debenture holders prior to the retirement date for the redemption of these debentures.

“Broadband and data services demand across the country continues to increase which is positive and a clear pathway for growth. Econet remains best placed to lead the advancement of technology within the industry, and to unlock interminable opportunities, reaping the benefits that come with being a diversified pioneer.”

The researchers said the misalignment in the review of tariffs relative to inflation and “real” costs will continue to impact revenue and profitability creating downside risk to the business.

“The depreciation of the local currency will continue to significantly impact the company’s ability to invest in new equipment as Econet imports equipment and software for operating purposes. With Capex hovering around 5% versus Southern African Development Community peers at circa 15%, the network will remain suboptimal in the near term,” researchers said.

The securities firm said Econet continued to look for innovative solutions in the industry and had embarked on an initiative to transform from being a communications service provider to a digital services provider.

The company recently strengthened its partnership with Ericsson at Mobile World Congress 2023, Barcelona, Spain as it prepares for 5G expansion by modernising its Radio Access Network and mobile Core network across Harare.

In its note, FBC Securities stated that the implementation of the multi-pricing regime will enhance the company's foreign currency generation and assist in defraying its basic operational expenditures associated with infrastructure and software improvements, both of which call for foreign currency.

In the telecoms industry, Econet has maintained a commanding market share and solidified its position as the industry leader.

According to FBC Securities, data usage in Zimbabwe is anticipated to rise over the coming years in line with worldwide trends. By 2026, it is anticipated that 85% of the people will have mobile phone subscriptions and 63% of the population will be online.

In its trading update for the third quarter ended November 30, 2022, Econet said inflation adjusted revenue for the nine-month period grew by 9% compared to the same period last year. The growth was largely driven by voice and data volumes, which were, however, weighed down by tariffs which were below inflation.

Although the business continues to witness an increase in demand for its services, the firm said foreign currency availability for servicing its foreign suppliers continued to be a major challenge and had hampered its ability to implement much needed network maintenance and expansion.

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