Batanai Matsika 
WHEN it comes to business growth prospects and customer loyalty, a good brand is everything. A brand is defined as an identifying symbol, logo or name that companies use to distinguish their product from others.
A combination of one or more of those elements can be utilised to create a brand identity. However, the two most important aspects are brand value and equity. Brand value is the financial amount the brand is worth while brand equity is the perception of consumers and how they feel about the brand. A business needs brand equity to raise brand value. The more visibility your brand has, the higher the value.
For instance, a diaper brand like Huggies or Pampers is more known than a smaller brand. According to Aswath Damodaran, Professor of finance at New York University’s Stern School of Business, a brand’s value is simply about the extent to which it can sell its goods and services at a premium price. Damodaran argues that brand name value is the “most sustainable competitive advantage known to business”.
Brand Finance, an independent brand valuation consultancy recently launched the Africa’s Top 150 Report, which is a ranking of Africa’s 150 most valuable and strongest brands. According to their findings, South Africa’s telco giant MTN is the continent’s most valuable brand of US$3,3 billion.
Over the last year, Africa’s largest mobile operator has celebrated solid profits and impressive subscriber growth, which currently stands at over 250 million across 23 countries.
It is also worth noting that the entire top 10 are South African brands, and a total of 87 brands feature with a cumulative brand value of US$34,6 billion, equating to 76 percent of the total brand value in the ranking. Other big names include Vodacom (brand value of US$2,1 billion), First National Bank (US$1,6 billion), Absa (US$1,5 billion) and Old Mutual (US$1,4 billion).
All in all, 19 out of the 54 African countries are represented in the ranking. Behind South Africa, Nigeria’s 16 brands account for 7 percent of the total brand value in the ranking (cumulative brand value of US$3,2 billion) and Morocco’s 9 brands account for 5 percent (cumulative brand value of US$2,2 billion).
When assessing the ranking at a sector level, banking, telecoms and insurance brands are the most valuable with these brands amassing a total value of US$12,5 billion, US$10,4 billion and US$3,8 billion, respectively.
Interestingly, only one brand from Zimbabwe; Econet Wireless appears on the Top 150 list and is ranked number 74 with a brand value of US$156,4 million. We note that Econet Wireless remains a market leader in all its critical operating segments with a market share of 68.5 percent for mobile subscribers, 82,7 percent for voice traffic and 60,8 percent for data traffic.
Economic fortunes for the telco sector are also set to improve given that Potraz has implemented an inflation linked pricing system based on a specific price index for the sector which is referred to as the Telecommunications Pricing Index (TPI).
The TPI is an effort to align prices with inflation. Further, the introduction of the Foreign Currency Auction System by the Reserve Bank of Zimbabwe (RBZ) has been cited as a positive development for meeting foreign currency requirements targeted at software upgrades, network support services and operating software licence fees.
In its trading update for the second quarter and half year period ending August 31, 2020, Econet Wireless indicated that voice traffic increased by 7,9 percent while data consumption was up 63 percent and SMS traffic increased 41,6 percent compared to the previous half year period.
The operating margins of the company have also remained positive given an EBITDA margin of c40 percent. At a market capitalisation of US$127,6 million, the stock is significantly underpriced bearing in mind its investment in Liquid Telecommunications that is valued at over US$135 million and estimated brand value of US$156,4 million. Based on our estimates, the telco is trading at an undemanding PER of 9.4x versus 16.6x for Safaricom (a comparable SSA telco). Value scavengers should be taking positions here. We upgrade the stock from HOLD to BUY!
● Matsika is head of research at Morgan & Co, and founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com
