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The Goose that Laid the Golden Eggs




Dear Investor, we are pleased to share with you the below business analysis perspective for Safaricom.


1. Toll bridge Investment Strategy

There is usually only one toll bridge and every one must pass through it. The owner is thereby guaranteed a steady income stream that in the long run will make him rich. A wonderful business to own in the stock market is one which functions similarly to a toll bridge.

Safaricom’s Mpesa powers over 80% of Kenya’s mobile money transactions in terms of volumes. Each & every Financial Institution that wants to do money transactions must pass through the platform.

2. Supplier of Suppliers

Safaricom supplies M-PESA and other services to different industries. These industry players then offer these services to end-users or customers.

Local banks will promote Safcom Services for free and sell them as value additions eg by allowing their customers to deposit cash into their bank account from M-PESA paybill numbers. The banks will even pay for adverts for that, therefore promoting Safaricom products for free.

Additionally, mobile lenders have Mpesa as the channel for their clients to access the money that they have borrowed from the apps.

3. Non Bank Financial Companies (Fintechs)

With the stringent capital requirements and regulation of the traditional banking, sector banks have failed to meet all the financial needs of certain segments of their markets. This together with the demonetization of currencies efforts in most countries has presented a strong case for the rise of NBFCs.

Asia and particularly India have seen the rise of NBFCs with the likes of Tencent owned Wechat continuing to create value for the shareholders while meeting the unique needs of the Chinese “netizens”.

This case has been more emphasized by the ongoing demonetization of high-value currency in India that has led to growth in NBFCs companies.

We believe that this revolution was started by Safaricom’s MPESA in Kenya.

It was then followed by Mshwari, the partnership between Safaricom and Commercial Bank of Africa. Other key non-banking financial companies in Kenya are Andreessen Horowitz venture capital backed Branch app and another US investors funded Tala mobile app. The growth of NBFCs have been faster than banks and we believe that quality NBFCs will outperform traditional banks in the stock market.


4. Second Curve

We all have these curves in our lives: we study, gain experiences at a job/position – that’s when we are getting uphill on the curve. Then on the top, we get comfortable, sometimes way too comfortable and we don’t see the signs of collapse and downfall. Not only companies should start planning their next product, service, new market while the first curve is still
moving upwards but we, individuals as well. If we leave or don’t reshape our current position/relationship until we hate it, then we could end up like Kodak: looking at other companies making great digital cameras though they had the technology first. M-PESA is the golden goose that laid the second curve for Safaricom’s second curve.

5. Mathew Law Effect

Another key thing for Safaricom has been cumulative advantage/Mathew law effect.

  • ¾ -First to rollout robust infrastructure
  • ¾ -First to reduce the value of airtime to be purchased
  • ¾ -Per second billing
  • ¾ Mpesa
  • ¾ Robust agency network working with below the line agency network company called Top Image
  • ¾ Robust network attracted the mass market which brought the revenues creating incentives for continuous network upgrade
  • ¾ First to roll out 3G,5G. 3G+4G network meets the rise of the over the top telco apps like WhatsApp
  • ¾ Enriching Mpesa meets rise in cashless transactions, payments, sports betting
  • ¾ Patronage by Vodafone which had maturing markets & was seeking growth, Etc

vi. The Elephant can also dance

Having gotten the runway for the launch for home internet, Zuku had a 60% market share at one point. Safaricom came from behind and danced its way to position one with the nimbleness of a hare and is now neck to neck with Zuku in market share.

Hope that you have remarkably enjoyed the read.

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