SCOM at 34.05 KES: M-PESA Margins, Dividend Yield, and Regulatory Risks

SCOM’s Dividend and Market Move Safaricom (SCOM) traded around a 34.05 KES close across 1–2 July 2026, with 33.79 million KES in market turnover reported in the session. The company announced a dividend of 1.15 KES per share, payable on 4 September 2026 and with a book-closure date set for 4 August 2026. Foreign activity in the stock during the session showed net inflows of 21.62 million KES, contrasting with broader market dynamics that saw last week’s net outflows totaling 1.18 billion KES. The numbers come from the market wrap prepared by Kingdom Securities Limited, reflecting the day’s trading and corporate action details. Against a backdrop of overall market volatility, Safaricom’s dividend announcement adds a stable income signal for investors while the modest foreign inflows suggest selective participation in a cycle of mixed liquidity.

Business Snapshot: M-PESA Economics M-PESA remains Safaricom’s core revenue engine, contributing roughly 40% of service revenue in FY2025, the latest full-year reference in the available data. This backbone supports a broad ecosystem of mobile financial services that continues to scale with user and merchant activity. In Q1 2026, M-PESA transaction volumes grew 12% year over year, supported by several product lines:

• Lipa Na M-PESA merchant payments advanced by 18% year over year, underscoring merchant acceptance and digital payment adoption.
• M-PESA Global remittances rose 22% year over year, and this business line now accounts for about 15% of total M-PESA revenue, highlighting international transfer activity as a meaningful share of the mix.
• Fuliza overdraft disbursements increased 9% year over year, with 1.2 million active users as of June 2026, indicating continued demand for short-term credit embedded in payments. Regulatory headwinds persist:
• The Central Bank of Kenya (CBK) issued a directive in 2025 that caps mobile lending interest rates at 1.5% per month, a rule that compresses Fuliza’s margin and can affect lending profitability.
• Competitive pressure from Airtel Money intensified as Airtel rolled out Pesa Pata promotions, which drove around 500,000 new registrations in Q2 2026, signaling rapid uptake of Airtel’s promotional incentives.

The combination of rate caps and interoperability expectations continues to shape the pricing and competitive dynamics of Safaricom’s mobile money platform, adding a layer of regulatory risk to growth trajectories in the payments and credit spaces. The competitive landscape is evolving with Airtel’s aggressive pricing moves and promotional campaigns, potentially influencing customer behavior and service mix.

Financial Trends: Margin Pressure and Liquidity Revenue and Profitability Safaricom’s service revenue rose 8.5% year over year in Q1 2026, a respectable pace but still below the 10% growth target implied for the full-year context. EBITDA margin compressed to 42.3% in Q1 2026 from 44.1% in Q1 2025. The margin pressure reflects two main cost drivers:

• Higher energy costs, up about 15% year over year, driven by tariff increases in the KPLC framework.
• Increased marketing spend, up 22% year over year, deployed to counter Airtel’s promotional activities and maintain customer engagement. Net profit margin eased to 18.7% in Q1 2026 from 20.1% a year earlier, with higher finance costs contributing to the decline. T-bill rates in the period ranged from 8.83% to 9.00%, adding to the cost of debt and affecting overall profitability.

Cash Flow and Liquidity Operating cash flow declined 5% year over year to 28.4 billion KES in Q1 2026, signaling a softer cash-generating profile in the period despite ongoing operating strength. Free cash flow decreased 12% year over year to 15.2 billion KES, pressured by several cash usage items:

• Capital expenditure totaled 5.8 billion KES in Q1 2026, rising 18% year over year as Safaricom progresses with its 5G rollout and related network investments.
• Dividend payouts of 1.15 KES per share continued to weigh on cash availability, with implied yield around 4.2% at the then-current price. Leverage remained contained, with a net debt to EBITDA ratio of 0.9x, improving from 1.1x in Q1 2025, indicating manageable debt levels relative to cash flow generation.

Peer Comparison: Telco Sector Dynamics Safaricom operates in a Kenyan telco market characterized by a duopoly structure, with SCOM commanding roughly 65% of sector revenue and Airtel Kenya about 35%. Key metrics for Q1 2026 include: Revenue (Q1 2026): Safaricom 78.3 billion KES; Airtel Kenya 32.1 billion KES. EBITDA Margin: Safaricom 42.3%; Airtel Kenya 38.7%. M-PESA Users: Safaricom 35.6 million; Airtel Kenya 18.2 million. ARPU (Monthly): Safaricom 345 KES; Airtel Kenya 210 KES. 5G Coverage: Safaricom extends to 85% of urban areas; Airtel Kenya to 60% of urban areas. Airtel’s more aggressive pricing strategy has begun to erode Safaricom’s competitive position in certain segments: Voice calls: Airtel’s promo at 1 KES per minute contrasts with Safaricom’s 2 KES per minute, a difference that can influence call volumes and customer loyalty. Data bundles: Airtel’s 1 GB data offer for 50 KES contrasts with Safaricom’s 1 GB for 99 KES, illustrating divergent pricing strategies for data access.

Valuation: Dividend Yield vs. Growth Dividend Metrics The 1.15 KES dividend implies a 4.2% yield at Safaricom’s 34.05 KES share price, offering a visible income component to investors. Payout ratio stands at 65%, which sits above the historical 50–60% range; this suggests potential sustainability risk if margins tighten or growth slows, though the payout remains supportive in the near term. Dividend growth has slowed to about 5% year over year, in contrast to a 10% compound annual growth rate observed between 2020 and 2024, indicating a normalization from higher growth years.

Price Targets and Multiples Kingdom Securities maintains a HOLD rating with a price target of 36.50 KES, implying roughly 7% upside from the current level. EFG Hermes revised its target to 35.00 KES, signaling about 3% potential upside, with notes highlighting regulatory risk as a key dynamic shaping near-term performance. The forward price-earnings multiple stands at about 12.8x, versus a sector average around 14.2x, reflecting concerns about growth momentum and regulatory pressures.

Key Risks: Regulatory and Competitive Pressures Regulatory Risks CBK’s 2026 draft guidelines contemplate capping mobile money transaction fees at 0.5% of value, down from the current 1–2% range, which could compress take rates and affect service margins. Interoperability requirements for all digital lenders would increase competition for Fuliza and related credit products, potentially compressing wholesale earnings from the overdraft business. A potential government partial stake sale in Safaricom, targeting around 244 billion KES in proceeds, could press the share price if the sale proceeds are executed at a discount to market value.

Competitive Threats Airtel’s 5G expansion plans aim for 70% population coverage by 2027, a move that could erode Safaricom’s network-differentiating advantage and affect customer acquisition, ARPU, and data usage. Equitel (Equity Bank) has grown its share of mobile money transactions to 5% from 2% in 2024, signaling rising competitive pressures in the mobile money space.

Macroeconomic Risks Inflation was reported at 6.4% with a core rate of 3.1% and a non-core component of 15.1%, factors that can erode consumer purchasing power and drive churn or reduced discretionary spending on telecommunications services. Fixed-income yields (T-bill rates) at 8.83–9.00% may attract investors away from equities, challenging equity market performance in periods of rate stability or hikes. Kenya’s FX reserves stood at USD 14.05 billion, offering stability with about six months of import cover, yet external debt obligations due in July could tighten liquidity if debt service pressures rise.

What to Watch Tomorrow CBK bond auction results: The T91 yield, currently around 8.825%, will serve as a key signal of liquidity conditions and the appetite for duration in the local debt market. Airtel’s Q2 2026 subscriber data: Market participants will monitor for signs of M-PESA user growth deceleration or shifts in overall customer momentum as competitive pricing and offers continue. Safaricom’s price action relative to the 200-day moving average: The 200-day MA sits near 18.00 KES; a break below this level could trigger technical selling pressure and influence near-term trading dynamics.

Informational only, not investment advice.