IH Securities says Econet’s revenue will decline by 9 percent in FY2017, with the dip expected to extend further into FY2018. Last year, the group’s overall revenues had declined by 14 percent to $641 million. Econet’s financial year closes at the end of February annually.
“We forecast a decline in revenue of 8, 9 percent year-on-year for FY17 to $584 million and a further 0, 7 percent year-on-year decline for FY18 to $580 million,” said IH Securities.
The telecoms firm recently saw its shareholders anonymously approve a capital raise of $130 million by way of a rights offer of ordinary shares and Linked Debentures in order to facilitate the servicing of obligations to its foreign lenders.
The analysts say although the successful capital raise will be positive for the company’s performance going in to the new financial year, factors in the macro-economy will still have a great impact on how Econet performs in FY2018.
“While we anticipate a recovery in Econet’s performance post FY18 as a result of this transaction, together with economic recovery, prevailing headwinds in the form of liquidity challenges, regulatory interventions and low disposable incomes are likely to persist in the medium term,” they said.
But they foresee a general positivity in the long-term prospects of the telecoms operator.
“Post FY18, we anticipate continuous innovation, and greater contribution from EcoCash and broadband, will uplift revenue beyond the $600 million mark, growing CAGR by 2 percent to 2022.
“We expect sturdy earnings before interest, tax, depreciation and amortisation (EBITDA) margins going forward, with slight improvements initially due to continuous cost rationalisation efforts,” noted IH Securities.
“Our net income estimate for FY18 at $50, 5 million is a 56, 6 percent year-on-year jump from our FY17 estimate of $32, 9 million (-17, 9 percent year-on-year). The rapid jump in FY18 can be attributed to the lower effective interest rate assumed (7, 5 percent especially given the removal of the 6 percent guarantee fees to Econet Global) as well as lower debt levels.
“We forecast a 196 percent decline in finance costs in FY18 and anticipate EBITDA/finance costs will improve to 21.42x from the current 6.95x, this is however still lower than the peer average of 34.25x.
“Cash flows are anticipated to remain positive, but we do not anticipate redemption of the proposed debenture in the medium term nor a rapid increase in the dividend yield, as the current liquidity crisis preventing the remittance of forex abroad is expected to continue. We anticipate that management will initiate a major share buy-back program instead