Why South Africa’s Vodacom is planning to sell off part of its M-Pesa stake
Why South Africa’s Vodacom is planning to sell off part of its M-Pesa stake
Vodacom, South Africa's largest telco, has earned premium buyout offers for a portion of its M-Pesa mobile money market. According to CEO Shameel Joosub, Vodacom would be forced to accept these deals if the success of M-Pesa does not substantially increase the company's market valuation.
We believe it is premature to have that discussion now. Perhaps two or three years from now, the conversation will be very different. We continue to seek unlocking.
Vodacom wants to boost earnings
“Yes, if you do it early enough, we know we can get multiples of 25 and higher. We've received unsolicited offers in that regard. However, we are not yet in that space,” he added.
By multiples, the operator may be referring to deals that are directly proportional to M-Pesa sales or income. M-Pesa reported $1.37 billion in revenue for the fiscal year ended March 2021, serving over 40 million users.
Analysts value M-Pesa at close to $3 billion.
With that in mind, why is Vodacom seeking to divest a portion of its stake in Africa's largest mobile money company? We discuss the most possible explanations.
Vodacom wishes to increase its profits.
M-Pesa has not been a significant source of revenue for Vodacom, despite the telco holding a 35% interest in its parent company, Safaricom.
According to reports, the M-Pesa service has not boosted Vodacom's market capitalisation to the maximum extent possible. Indeed, Vodacom's share price has risen by less than a billion dollars since November 2019.
While Vodacom's market capitalization of $15.8 billion is greater than Safaricom's ($13.9 billion), the small profits generated by M-Pesa in comparison to Vodacom's overall revenue appears to be a significant disincentive to mobile money investments.
Slow M-Pesa growth in South Africa
Unlike in Kenya, where M-Pesa accounts for 91% of all mobile subscribers, the mobile money service has struggled to gain traction in South Africa, Vodacom's largest telecoms sector. In the world, the operator has 44 million subscribers, more than MTN's 33 million.
M-failure Pesa's to succeed may be due to the fact that the majority of South Africans are already banked, with financial inclusion reaching up to 80% – 4 in 5 South Africans have bank accounts and use financial services.
M-Pesa is also operated by Vodacom's majority-owned subsidiaries in Tanzania, Mozambique, Lesotho, and the Democratic Republic of the Congo. None of these countries, however, have seen the rapid adoption of M-Pesa that Kenya has.
Expansion plans
Vodacom may be looking to accelerate global expansion plans for the mobile money remittance network by authorizing a partial sale of its M-Pesa stake.
In 2018, Vodacom and Safaricom formed a 50-50 joint venture to launch M-Pesa Global Services, a network that enables cross-border remittances and global payments.
With Paypal and Alibaba already integrating M-Pesa, Vodacom could use the proceeds from a partial sale to form new alliances and grow into new markets.
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