Visit any country in the region, and chances are that among the first signs of Kenyan presence you will spot is the green of Safaricom’s M-Pesa agent shop or the maroon of Equity Group’s bank branch.
Equity Bank and M-Pesa, a popular mobile money transfer service, are increasingly rivalling tea and flowers as Kenya’s leading exports.
Although they ply their trade in separate environments characterised by different market dynamics (Safaricom’s DNA is telecoms while Equity Group’s is banking), Equity and Safaricom’s paths have increasingly converged around financial technology, leading to fierce turf wars like the infamous battle over Equity’s thin SIM card.
The next battleground for these behemoths—both of which are listed on the Nairobi Securities Exchange (NSE), and enjoy 40 percent of the total wealth at the bourse—is diversification and regional expansion.
So far, the James Mwangi-led Equity Group, with a presence in six countries and active in four sectors, has an edge in both frontiers.
However, regional expansion is becoming a poisoned chalice for Safaricom. The telco entered Ethiopia last year hoping to exploit the 130 million market.
Last year, for the first time in more than two decades, Equity Group’s 12-month net profit was higher than Safaricom’s, making it the most profitable firm in the region. But the fight for regional dominance between these two corporate titans has just begun.
For a while, Safaricom’s pole position as the most profitable company in the region looked unassailable, with its coffers adequately fed by a steady flow of earnings from M-Pesa earnings, which made up for the flagging revenues from calling and texting as subscribers shifted to Internet calls and messaging apps like WhatsApp and Telegram.
M-Pesa, around which Kenya’s budding cashless economy has crystallised, is today the telco’s cash cow.
But this is changing. Thanks to a combination of factors, including Safaricom’s entry into Ethiopia, and Equity Group’s aggressive diversification and regional expansion, the bank is slowly narrowing the profit gap.
In the 12 months to December 2023, Equity Group made a net profit of Sh41.98 billion, compared to Safaricom’s Sh62.27 billion in the year to March 2024. Safaricom’s net profit grew 13.7 percent to Sh84.74 billion, while Safaricom Ethiopia recorded a loss of Sh42.09 billion, of which Safaricom Plc’s share was Sh21.76 billion, given its 51 percent share in the Ethiopian business.
Equity Group has been narrowing Safaricom’s profit gap. The telco’s net earnings are now 1.42 times that of Equity Group compared to more than 3.66 times in 2020 when Safaricom’s profits peaked.
“Equity business is closer to our hearts, money. That gives it a head start and has been there longer than Safaricom. It’s more in tune with the Kenyan market and now entering other regional markets,” said XN Iraki, a professor at the University of Nairobi Faculty of Business and Management Science.
The don reckons that Safaricom benefited from novelty, where Kenyans leapfrogged from having no phones to mobile phones.
So far, it appears like Safaricom’s entry into Ethiopia has left it with a deep wound, inflating its expenses while eating into its profits.
However, should the Horn of Africa market take off, some analysts insist the telco will comfortably reclaim its position.
Safaricom booked a loss of Sh21.7 billion from its Ethiopia unit. This is akin to Equity Group losing all its revenue from one of its subsidiaries.
However, experts believe Ethiopia, which looks like Safaricom’s curse today, will soon be its blessing.
“I believe once Safaricom Ethiopia breaks even in the financial year 2025 (projected), Safaricom will likely reclaim its pole position, should its Ethiopia play bear fruit,” said Melodie Gatuguta, Research Associate at Standard Investment Bank (SIB).
“I believe with the large customer base in Ethiopia, Safaricom will soon be in the lead again in terms of profits,” said Annchristine Wamuyu, the corporate finance associate at ABC Capital, another investment bank.
Ms Wamuyu, like many other analysts, cautions against an apple-to-apple comparison of the two companies’ growth because their industries are too different.
“Safaricom’s market share borders on being a monopoly while the banking industry is becoming more competitive,” explained Wamuyu.
Because Safaricom, unlike Equity, enjoys a significant market share in the Kenyan market with less competitive pressure, it has more room for steeper pricing and better margins, said Wesley Manambo, another senior researcher at SIB.
Mr Manambo explained that Safaricom’s entry into Ethiopia provides an opportunity for data on the GSM business as over 80 percent of the country is offline.
“Not to mention that mobile money will be a game changer given the high cash usage if they get their pricing, network, and agency rollout fast and right,” he added.
Despite belonging to different sectors, both companies have recently fashioned themselves as fintechs.
Equity Group has made forays into telecoms with its thin SIM card, Equitel, enabling customers to call and text. Safaricom has pivoted more into financial services by unveiling mobile payments products, and loan and savings products.
Although both companies are mature cash cows in their respective sectors in Kenya, with room for growth in their diversification strategies into the broader financial services sector in the country, it is Equity Group that so far has an edge in diversification with its entry into insurance, said Mr Manambo.
“I believe [Equity’s insurance] is set to profit from its brand, customer base, and balance sheet strength. For Safaricom, we are yet to see shareholders lobbying for entry into financial services offerings, be it by green field or acquisitions, as this is a key growth frontier.”
The head-to-head numbers for the various competing product lines offered by the two companies show, that Equity Group has been gaining some ground.
The lender grew total revenue by 25 percent, from Sh144.3 billion to Sh180.1 billion, against Safaricom’s 15 percent, from Sh218.7 billion to Sh252.4 billion.
Equity group has also been more efficient than Safaricom, averaging a net income of Sh24 for every Sh100 of revenue. Safaricom averages Sh17 for every Sh100 of revenue.
Equity Group grew their customers by 10 percent from 17.7 million to 19.5 million compared to Safaricom's 7 percent from 45.9 million to 49.0 million including their Ethiopia market.
The merchants under Equity Group’s Pay with Equity (PWE), the equivalent of Safaricom’s Lipa na Mpesa (LNM), recorded a 55 percent growth from 667,223 merchants to 1,033,386 merchants compared to the telco’s four percent growth from 606,662 merchants to 633,009 merchants.
Equity’s hold on the lead is not guaranteed, but so is the prediction that Safaricom will reclaim the top spot.
Strategy and fate (including possible civil unrests in Ethiopia and DRC) will play a huge part in deciding whether Equity Group, which has diversified into various sectors and made forays into the region, will stretch its lead or blow it allowing Safaricom to reclaim its pole position.
Mr Manambo reckons both counters have a strong growth story with impressive valuation metrics.
However, Manambo believes Safaricom is better positioned to record windfall profits in the long term if they get Ethiopia right and diversify by license acquisition or buyouts into the larger financial services in Kenya.
“Failure of which may see Equity profitability surpass them long term,” said Manambo.
So far, Equity looks to be walking on the right track on diversification, says Iraki.
“I think even without Ethiopian liability, Safaricom will still be overtaken by Equity. How many countries is equity in compared with Safaricom? Compare income streams and innovations for both. The share prices can also tell us where each is heading,” says XN Iraki.
