Strong results should make Ethio Telecom look attractive

Ethio Telecom reported a significant hike in revenue and earnings, as well as customer growth, in the most recent financial year, something that will doubtless help it in its quest to attract a new investor.

The state-owned Ethiopian incumbent, which recently re-started its privatisation process, has been at the centre of speculation regarding interest from major telecoms companies. Orange and e& have once again been named as likely candidates; the most recent report came from Bloomberg, whose sources earlier this month said both telcos are speaking with advisors regarding a potential bid.

Those names have come up before, so the report was hardly a surprise. As has that of Veon, representatives of which met with the Ministry of Finance about investment opportunities in Ethiopia earlier this year.

The Ethiopian government invited expressions of interest in a 40% stake in Ethio Telecom in November last year, setting a late December deadline. We haven’t had much concrete information on how that process is progressing since then, but the state upped the available stake to 45% earlier this year, which perhaps suggests that it did not get the responses it was looking for.

This latest results announcement from Ethio Telecom can only serve to heighten any interest from would-be investors.

The telco saw 23.5% year-on-year growth in revenue for the 12 months to the end of June to 75.8 billion birr (US$1.4 billion), which it says represents 101% of its target, achieved by expanding revenue sources into digital services and finance, as well as the traditional telco business.

While Ethio Telecom is singing from the same hymn sheet as its international peers regarding new revenue sources and digital services, it’s pretty clear that the bulk of its revenue still comes from telecoms: close to 44% of its turnover is from mobile voice and more than a quarter from data and Internet services. Its value-added services business contribute 6.9% to the top line, while ‘other services’ bring in 7.2%.

Customer numbers are on the up, Ethio Telecom’s overall base reaching 72 million at the end of June, up 8% on the previous year. The vast majority – 69.5 million – are mobile voice customers, although amongst those the firm has close to 40 million data and Internet users too. Its fixed base is still below 1 million.

Its Telebirr mobile money service, launched just over two years ago as the only one of its kind in Ethiopia, has attracted 34.3 million subscribers with a total transaction value of 679.2 billion birr ($12.4 billion). Ethio Telecom no longer has the monopoly on mobile financial services, but they remain a key element of its proposition.

Customer and revenue growth have naturally had an impact on Ethio Telecom’s bottom line: EBITDA was up by 24% year-on-year and the firm’s net profit margin rose to 25%. But cost-cutting has played its part too.

“In addition to efforts made to diversify revenue streams, our company has devised and implemented cost optimization strategies to reduce costs and utilize resources properly to drive efficiency and profitability,” the telco’s results announcement reads. “By formulating and implementing the strategy, outstanding results have been recorded since the last fiscal year. In this fiscal year, our company saved more than 6.47 billion birr achieving 106% of its target.”

Ethiopia is not an easy market in which to operate, in no small part due to the macro-economic situation and ongoing conflict in Tigray. Safaricom launched services last autumn, having picked up the country’s first private licence some 18 months earlier and while it is growing fairly quickly, its 3 million-strong mobile customer base as of March is still fairly small compared with that of the incumbent.

However, there is still opportunity in Ethiopia, and one way to tap into that would be to acquire a slice of Ethio Telecom. It seems likely that at least one foreign operator will be tempted to give it a whirl.

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