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Harare – Analysts say rising costs in Econet Wireless, the biggest telecommunications company in Zimbabwe with 9 million subscribers, are worrisome as they have pushed down after-tax profits for the half-year period to the end of August by 30%.
Econet lost 2 US cents on the Zimbabwe Stock Exchange (ZSE) to close Monday’s trade session at 70 cents. On Friday, the Strive Masiyiwa-founded teleco group said half-year results declined 30% to $49.6m while revenues grew only marginally by 4.2% to $392.3m.
Analysts at Zimbabwean brokerage and advisory firm Lynton Edwards Securities said in a note on the company that the giant Zimbabwean telco's cost base could be ballooning beyond control.
"Although we are positive on the revenue growth potential of Econet, we are less positively inclined to Econet’s’ ability to manage its rising cost profile, associated with operating costs," the securities company said.
Econet is among previously top performing companies that are suffering setbacks owing to a slowdown in the country's economy. Brewer Delta Corporation - an associate unit of SABMiller [JSE:SAB] - has also reported declining lager beer volumes in the country, pointing to slowing demand and expenditure pressures, say economists.
"Though overall revenue generation has been affected negatively by the prevailing economic challenges, we expect Econet to continue to show relative strength in revenue. We however forecast growth to remain single digit at the end of FY2015."
Lynton Edwards has now forecast that turnover in Econet will amount to $797.8m for the full year to end-February 2015. After-tax profits are expected to top $106.5m.
This points to a 10.78% decline in after-tax profit and a 6% rise in revenue on a year-on-year basis. The decline in after-tax profits is expected to be worsened by rising operating costs.
For the half-year period to August, direct costs increased by 93.75% to $31m while administration costs went up by 15% to $46m. Employee-related costs shot up by 20.51% to $47m.
Experts say Econet's ability to "manage these costs while maintaining strong data and overlay services growth will be a key factor in determining how much revenue growth is translated into shareholder value”.
Growing revenue from data and overlay services - such as its mobile money platform EcoCash and other product services - is expected to provide cover for declining revenues from the voice category.
Telecommunications companies across the region are facing disruptive competition from instant messaging and social networking platforms, whose prominence continues to grow.
- Fin24
