South Africa’s telecoms operator Vodacom Group has received offers from parties interested in buying into its continental mobile money platform M-Pesa at a major premium.
Chief executive Shameel Joosub made the disclosures to analysts on Tuesday last week, according to a transcript of the conference call.
He said that the multinational has not taken advantage of the offers, adding that they will be considered in about three years if the value of the financial services platform will not be reflected in the firm’s share price.
“We think it’s too early to have that conversation now. Maybe two or three years down the line it would be a different conversation. We still want to unlock,” Mr Joosub said.
“If you do it early, yes, we know we can get multiples of 25 times and upwards. We’ve had unsolicited offers coming through in that regard. But we’re not in that space yet.”
It was not clear whether the offers were on multiples of sales or earnings. Financial technology companies are, however, typically valued on multiples of sales, according to advisory firm Finerva.
Airtel Africa recently sold minority stakes in its continental mobile money service Airtel Money for Sh32.2 billion, valuing the platform at Sh286 billion or 11.6 times the revenues of Sh24.5 billion it generated in the year ended March.
Applying a similar valuation to M-Pesa’s revenue of Sh148 billion in the same period across Africa, including Kenya, would indicate that it is worth Sh1.7 trillion.
The profitability of M-Pesa and Airtel are not disclosed separately, making it difficult to establish their level of cash generation.
Mr Joosub said Safaricom has benefitted more from M-Pesa compared to Vodacom in terms of a higher share price and market capitalisation.
Vodacom has a market capitalisation of about Sh1.8 trillion, slightly ahead of Safaricom’s Sh1.5 trillion despite being a much larger firm by revenues and earnings among other measures.
“I’d say we probably get some of the benefit of that into the Safaricom share price – I wouldn’t say all of it – reflecting the true potential of M-Pesa and the multiples that you can get on financial service assets,” he said.
“But of course, a better reflection of that is in Safaricom than we see in the Vodacom share price.”
M-Pesa is currently offered by Vodacom majority-owned subsidiaries in Tanzania, Mozambique, Lesotho and Democratic Republic of the Congo (DRC). Vodacom also owns an indirect stake in M-Pesa’s business in Kenya through its 35 per cent stake in Safaricom .
Mr Joosub said that should a decision be made to sell part of M-Pesa, the structure of such a sale will have to be defined.
The options include selling a stake in the platform in specific countries or in M-Pesa Global Services – the new joint venture it runs with Safaricom on a 50/50 basis and which aims to take the service international.
Vodafone Plc, the parent company of Vodacom, signalled that M-Pesa could fetch greater sums should a partial sale of the mobile money platform be implemented.
“We are a clear number one in the African market. We have a base of mobile money of over 60 million in active customers. So we are about three times the size of Airtel,” Vodafone’s chief executive Nick Read said on Tuesday last week in response to an analyst who asked if the multinational will make similar deals like Airtel.
Vodacom’s financial services, including Kenya, had 57.7 million customers and its total revenue stood at R19.3 billion (Sh148 billion) in the review period, representing a six percent increase from R18.2 billion (Sh139.4 billion) a year earlier.
This was despite loss of R2 billion (Sh15.3 billion) from zero-rating of certain person-to-person cash transfers in most of the markets including Kenya where free transactions lasted between March and December for values of Sh1,000 and below.
Both Airtel and Vodacom plan to invest heavily in their mobile money platforms which are set to replace the traditional voice business as the growth and profit drivers.
“These are less capital-intensive businesses compared to core mobile so that you gives you a better return on capital profile,” Mr Joosub said.
