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Is Econet stock undervalued?

IN line with the new thrust of strategic HR to thoroughly understand the business environment, Brett Chulu (BC) caught up with Douglas Mboweni (DM), the chief executive of Econet Wireless Zimbabwe (Econet), the Zimbabwe Stock Exchange-listed giant and the largest mobile telecoms services operator in Zimbabwe.

Report by Brett Chulu


We discussed Econet’s recent upgrade of their mobile money system, EcoCash, business performance and the recent investment into TN Bank.

BC: You have recently upgraded the EcoCash system. What was the reason for the upgrade?
DM: The company’s Mobile Money Transfer (MMI) service is a key component towards increasing usage, loyalty and revenues from what we call overlay services hence the upgrade of the MMT platform to the Comviva platform that opens up additional functionality thereby enabling the launch of more use cases for customer convenience.

BC: You roped in a new technical partner, Comviva of India. MasterCard has chosen Comviva as one of its key strategic partners in rolling out its Mobile Money Partnership Programme. Are we likely to see EcoCash users being able to use their phones to transact using MasterCard? If so, what is the scope of services Ecocash users will be exposed to?
DM: We are exploring a variety of services that can be attached to our EcoCash platform and the market will be updated as these services are implemented.

BC: You are on record saying that Econet wishes to tap into the approximately US$700 million remittances into Zimbabwe from the Zimbabwean Diaspora in South Africa. What measures are you putting in place to draw from that potential revenue stream?
DM: We are very excited about this opportunity. We already have a significant presence in South Africa through our “call home” product which already enables Zimbabweans in South Africa to make calls to Zimbabwe at special tariffs and to transfer airtime purchased in South Africa to subscribers in Zimbabwe. We believe that this opens up more opportunities for allowing Zimbabweans in South Africa to transact using our EcoCash and call home functionalities.

BC: Recent media reports from Zimbabwe claim that an organisation called GSMA in their blog called MMU (Mobile Money for the Unbanked) carried an authoritative report that out of a reported 1,5 million registered EcoCash subscribers only 270 000 are active. Is there substance in these reports?
DM: I am not aware of the GMSA report or the source of the information published by GMSA. August marks our half year and we hope to publish the company’s results in October 2012. As we are now in closed period and in terms of Zimbabwe Stock Exchange Listing requirements I am not at liberty to divulge any price sensitive information but suffice to say we are delighted by the success of this product.

BC: Official data shows that in the operating period 2011/2012 data and SMS contributed 13% of the US$611 million revenue made in that period, unchanged from the previous period. Is growth in data and SMS revenue stagnating? Is the SMS revenue stream taking a knock from instant messaging services such as WhatsApp?
DM: We are pleased with the growth in data usage and overlay services in absolute terms and in relation to our projections. Although the contribution of data and SMS to revenue growth has been pleasing, the continued robust growth of our subscriber base and airtime consumption has had the effect of underestimating what may otherwise be considered excellent progress.

BC: Recent media reports suggest that there is a section of investment analysts who are suggesting that the US$20 million you poured into TN Bank is not new money, but a ‘squaring off’ of deals made in the past. What is confusing with this view is that the circular published prior to the listing of TN Bank gave a clear breakdown of how that investment would be utilised. Perhaps you would like to clear the air on this one?
DM: The circular to shareholders of TN Holdings Ltd dated June 12 2012 detailing the proposed demerger of TN Bank Ltd from TN Holdings Ltd clearly laid out the rationale and terms of the transaction on pages 11 to 14 and in particular the application of the proceeds of the capital raised is analysed under item 7 on page 14. We have no comment to make on market speculation.

BC: Econet’s EBIDTA (Earnings before Interest, Dividends, Tax and Amortisation) margin in the operating period 2011/2012 is 48%. Compared with Safaricom of Kenya, who in many respects, are comparable to Econet your EBITDA margin is 7% higher. However, Safaricom is trading at a higher price-earnings multiple than Econet? Why in your view are investors undervaluing Econet?
DM: This question is best answered by investments analysts. Our view is that there is no logical reason why our stock is undervalued.

BC: Given that Econet raked in US$611 million in 2011/2012, when do you think Econet will hit the US$1 billion top line mark?
DM: Econet does not give forecasts.
Let’s discuss at brettchulu@consultant.com.

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