South Africa’s biggest telco, Vodacom has received premium buyout offers for a partial stake in its mobile money business, M-Pesa. According to CEO, Shameel Joosub, Vodacom will be forced to consider these offers if M-Pesa’s performance does not significantly push up its market valuation.
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.Shameel Joosub, Vodacom CEO
“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,” he added.
By multiples, it might mean that the operator is eyeing offers in direct multiples of M-Pesa sales or revenue. Catering to over 40 million users, M-Pesa generated $1.37 billion in revenue for the year ended March 2021.
Analysts estimate M-Pesa’s valuation at close to $3 billion.
That said, why then is Vodacom looking to part with a portion of its share of Africa’s biggest mobile money business? We examine the likely reasons.
Vodacom wants to boost earnings
M-Pesa has not been a major driver of Vodacom’s service revenue, despite the telco owning a 35% stake in its parent company, Safaricom.
For instance, M-Pesa contributed $222 million to Vodacom’s revenue in FY 2019. By contrast, it generated over 3 times that figure ($690 million) of Safaricom’s overall revenue in the same year.
Apparently, the M-Pesa service has not shot up Vodacom’s market capitalisation as much as it possibly can. In fact, Vodacom’s share price has only increased by about $1 billion since November 2019.
Although Vodacom’s $15.8 billion market cap exceeds that of Safaricom ($13.9 billion), the minor earnings posted by M-Pesa relative to Vodacom’s overall revenue appears to be a big disincentive to mobile money investments.
Slow M-Pesa growth in South Africa
Unlike in Kenya where M-Pesa covers 91% of the entire mobile subscriber base, the mobile money service has not been able to attract enough users in South Africa – Vodacom’s biggest telecoms market. The operator has 44 million subscribers in the country, more than MTN’s 33 million.
M-Pesa has failed to thrive perhaps because most South Africans are already banked, with financial inclusion as high as 80% – 4 in 5 South Africans have bank accounts and benefit from financial services.
Vodacom’s majority-owned subsidiaries also operate M-Pesa in Tanzania, Mozambique, Lesotho and DR Congo. However, none of these countries have seen the rapid adoption of M-Pesa as in Kenya.
By sanctioning a partial sale of its M-Pesa stake, Vodacom might be looking to accelerate global expansion plans in the mobile money remittance platform.
Vodacom had struck a 50-50 joint venture deal with Safaricom in 2018 to launch M-Pesa Global Services, a platform that facilitates cross-border remittances and global payments.
With the likes of Paypal and Alibaba having already integrated M-Pesa, Vodacom could use the capital raised from a partial sale to forge new partnerships and expand to more countries.
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