Safaricom: Is the M-Pesa Growth Story Fully Priced In?

The Investment Thesis

Safaricom remains the most actively traded counter on the NSE, accounting for roughly 40% of daily turnover. At KES 28.40, it trades at 14.2x forward earnings — a premium to the broader market but a discount to its five-year average of 17x.

The bull case rests on three pillars: continued M-Pesa dominance in Kenya, the Ethiopia opportunity, and the 5G rollout. The bear case centres on regulatory risk, the capital-intensive Ethiopia expansion, and slowing domestic subscriber growth.

M-Pesa: Still the Engine

M-Pesa revenue grew 18% year-on-year to KES 120 billion in FY2025, driven by:

• Transaction volume growth — 17.2 billion transactions, up from 15.1 billion
• Super app expansion — merchant payments, credit, and savings products
• Cross-border remittances — growing at 35% annually

The key metric to watch is revenue per transaction, which has been declining as micro-transactions grow. This is actually healthy — it means the platform is deepening financial inclusion — but it does moderate revenue growth expectations.

Ethiopia: The Optionality Play

Safaricom Ethiopia has 8.2 million subscribers after 30 months of operations. The company invested KES 85 billion in the network and has targeted breakeven by FY2028.

Risks:

• Mobile money license delays (still pending government approval)
• Forex repatriation challenges
• Intense competition from Ethio Telecom's established base of 72 million subscribers

Upside:

• If M-Pesa launches in Ethiopia by H2 2026, it would be a significant catalyst
• Ethiopia's 120 million population represents a massive addressable market
• Current Safaricom valuation arguably assigns zero value to Ethiopia operations

Valuation Framework

Metric          Current   5Y Avg   Peer Avg
──────────────────────────────────────────────
P/E (Forward)   14.2x     17.0x    12.5x
EV/EBITDA       8.1x      9.5x     7.2x
Div Yield       5.8%      4.5%     3.2%
ROE             28.4%     32.1%    18.5%

At current levels, the stock is pricing in moderate growth but not the Ethiopia optionality. Our fair value estimate is KES 34.00, implying 20% upside.

We rate Safaricom a Buy with a 12-month target of KES 34.00. The risk-reward is compelling given the Ethiopia optionality and the 5.8% dividend yield providing downside protection.

Key Risks

1. Regulatory changes to M-Pesa pricing could compress margins
2. Ethiopia mobile money license further delayed
3. 5G capex exceeds projections
4. Shilling depreciation impacts Ethiopia investment returns