Is a matatu a better investment than Safaricom?
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
05 November 2023
Beatrice Njeri travelled on a 'shuttle' matatu from Kitale to
Nairobi recently and was pleasantly surprised that the fare was Sh1,500.
There were eleven passengers in the 14seat vehicle. She observed that
the driver fuelled it with 48.5 litres of diesel worth Sh10,000.
When they got to Nairobi, the fuel gauge showed about oneeighth of
diesel left in the tank. So, she did some quick math as follows: Total
fare paid was Sh16,500; cost of fuel was Sh10,000. Therefore, gross
profit was Sh6,500.
From this she estimated the driver’s pay to be about Sh1,500, which now
leaves “just Sh5,000” for the vehicle owner. She adds that the matatu
can only run one trip per day; but, if it makes a return journey at
night, the total income would be Sh10,000. So, she asks: “is a worthy
venture or am I missing something?”
It is not clear what Njeri would consider a good return from a
matatu. Nevertheless, we can work out a few figures to help us
decide. First of all, if you’re getting Sh10,000 every day, your monthly
income is about Sh300,000. Now that is not a small amount! But it can be
misleading when viewed in isolation.
So, we do a second calculation to find the profit margin (out of sales).
According to Njeri’s numbers, the owner makes a profit of Sh5,000 from a
turnover of Sh16,500. This works to about 30 per cent margin. Is 30 per
cent big or small?
Well, let’s compare it to the most profitable company in the country –
Safaricom. Last year (2022), its sales were Sh298 billion and, from
this, the profit before tax was Sh102B. This comes to about 34 per cent
profit margin. So, the matatu is playing in the same league with
Safaricom!
Finally, let us calculate the return on investment. I have checked a few
vehicle selling websites and found that 14seat vehicles go for about
Sh3 million to Sh5M. The middle value is about Sh4M. At Sh10,000 daily,
the annual income is Sh3.6M. This makes a return on investment of about
90 per cent!
If you wanted to buy the whole of Safaricom, you would need about Sh500B
at today’s price of Sh12.5 per share. From this investment, you would
get Sh102B profit in one year. The return is just 20 percent. It appears
that the matatu is a better investment than Safaricom! Or isn’t
it?
