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 14-seat 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 one-eighth 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 14-seat 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?