HomeBusiness DigestPredictions on Econet, EcoCash fulfilled

Predictions on Econet, EcoCash fulfilled

WE made two predictions about Econet’s share price and about the size of revenues EcoCash would generate.We were spot on.

The Human Capital Telescope Brett Chulu

This article will refresh our readers on the predictions we made in this column on Econet’s share price and Ecocash’s revenue-generation capacity. Readers of this column include local and foreign respected business leaders and business analysts.

The whole point of this article is to drive home an unusual point; a model can be more powerful than data. If a business leader waits until the data is clear, the game will be over. This is a lesson that our business leaders in Zimbabwe should take seriously. In short, in a world of fast-paced changes they cannot wait until the data confirms their hunches –it will be too late. Opportunities will be gone by the time data is clear.

Econet share price

In this column, on October 12 last year, that is 13 months ago, I wrote: “From the statistical relationships we derived from the model (a mathematical model I had prepared), we extrapolated to a number of firms not sampled, Econet is a very notable anomaly. From the parameters established from our model, Econet should be trading at around 676US cents per share, based on last year’s earnings performance. At the current share price of 475 US cents, our model shows that Econet is at least 42% undervalued.”

You can imagine my delight on Monday February 25 2013, five months later when the Econet share traded at  676,60 US cents, practically, the exact share price we had argued was the right level five months earlier. The Econet share price continues to trade above 600 US cents. If someone who read our article of October 12 2012 had bought our argument and purchased Econet shares, they stood to grow the value of their investment by 42% in a space of five months.

EcoCash revenue

Until last week, Econet had not released the revenue figures for EcoCash since it was launched in 2011. Econet revealed in its analysts’ briefing of the half-year results that EcoCash had raked in US$13 million. I had predicted this revenue level, as far as 17 months back. No insider information, please. Simple mathematical modelling did the trick. On June 22 2012, I wrote an article titled “Can EcoCash match M-pesa?. This article attempted to use what is known about M-pesa, the mobile money service operated by Kenya’s Safaricom to predict the financial performance of EcoCash. At the time of writing, EcoCash was barely 9 months old. One of Econet’s senior executives went on record to state that it was too early to gauge the performance of EcoCash. The executive went on to mention that it normally took five years for performance patterns in mobile money to be established. I could not wait for five years and so I decided to use M-pesa to establish a model to make sense of how other mobile money services were likely to perform operationally and financially.

In the June 22 2012  article I wrote: “Analysing M-Pesa’s revenue-generation per M-Pesa subscriber shows that average annual revenue per M-Pesa subscriber has risen to US$13,00.  This is a key metric that gives us a glimpse into the revenue generating capabilities of mobile money transfer over time.”

I had expected Econet to release EcoCash’s revenue at the end of the 2012/2013 financial year. Frustrated, I decided to do some digging into its published numbers. Armed with the US$13,00 per registered M-pesa subscriber I had extracted from the M-pesa’s five year evolution, I placed this as a ceiling for EcoCash.

After being disappointed by absence of EcoCash’s revenue figures in the 2012/2013 Econet report, I did a write up on October 31 (never published) on my thoughts on EcoCash’s performance. Here is an extract of what I wrote then (quoted verbatim):
“From the analysis of Econet’s full year 2013 financial results, EcoCash is not generating much.

“Data, SMS  full; year 2010/2011 contributed US$64,09m (EcoCash was launched at the end of the 3rd quarter during this financial year).

“Data, SMS, EcoCash; full year 2011/12 contributed US$85,54 million.

“Data, SMS, EcoCash; Full Year 2012/2013 contributed US$90,35 million.

Taking the growth in data and SMS from the year EcoCash was launched, there has been a growth of US$26,26 million. At US$1,2 billion transactions since launch, it means, EcoCash is processing an average of US$80 million worth of transactions per month. If we take a modal tariff rate of 3%, based on the assumption that most EcoCash users are registered subscribers then, EcoCash is generating about US$28,8 million per year, about 4% of its total revenue. A similar mobile transfer service, M-pesa, Kenya’s largest mobile network operator, is contributing 18%  to total income.  Does this indicate the scope for revenue growth from EcoCash? Using annual revenue per registered EcoCash user, we get an average of US$13,71.

M-pesa’s is in the US$13,00 -15 average revenue per M-pesa subscriber.“I had predicted US$28,8 million EcoCash revenue for a full 12 months. Halving that gives us US$14,4 million, which is not far from the US$13 million Roy Chimanikire, the group chief financial officer for Econet Wireless Zimbabwe revealed in his presentation two weeks ago. Our US$28,8 million was based on an EcoCash subscriber base of 2,1 million customers.

Now that EcoCash’s subscribership has since risen to 3 million, the EcoCash revenue for the current full year is likely to be about US$35 million.

It would appear that the model for mobile money transfers we derived from M-pesa’s first five years of operation is a good predictor of the performance of similar mobile money transfers.

Reflect on it

At times models are more powerful than data. If a business leader waits until the data is clear, the game may be over by then.

Chulu is a strategic HR consultant pioneering innovative HR practices in both listed and unlisted companies. brettchulu@consultant.com

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