Safaricom shares have rallied to an all-time high, nearly touching the Ksh30 ($0.29) mark in Tuesday's trading, which values the telecommunications company at a whopping Ksh1.2 trillion ($11.7 billion).
The company’s stock has risen 10 per cent in the first two weeks of the year to Tuesday’s average closing price of Ksh29 ($0.28), adding to the 40 per cent it gained in 2017.
Safaricom shareholders have enjoyed a cumulative 500 per cent gain or nearly Ksh1 trillion ($9.7 billion) on their investment in the past five years.
The latest price gain has pushed the telecoms operator’s market capitalisation, the measure of investor wealth in a company to Ksh1.18 trillion ($11.4 billion), just about Ksh20 billion ($194.2 million) shy of Ksh1.2 trillion ($11.6 billion).
The company’s share was trading at Ksh5 ($0.05) a piece at the beginning of 2013, valuing the company at Ksh200 billion ($1.9 billion) at the time.
The six-fold rise in price in the past five years defied a bear run that gripped the market for two years until last March, with analysts saying that the stock had become some sort of a safe haven for investors looking to protect their portfolio value at the Nairobi Securities Exchange (NSE).
Foreign funds looking to invest in the local stock market have also driven the demand for Safaricom and those of large banks such as KCB, Equity Bank and Cooperative Bank, due to their high liquidity.
Dearth in liquid investment
“Safaricom and the three banks are beneficiaries of the dearth in liquid investment opportunities at the NSE. Foreign investors continually focus on these specific stocks as they are the only stocks worth investing in when looking for exposure to Kenya, given the liquidity challenges other counters would offer,” said NIC Securities head of research Timothy Wambu.
“It is why despite Safaricom reporting its weakest revenue growth in five years as per its half-year results and possibly set to announce its slowest growth in earnings in May, the share price continues to surge.”
Safaricom has 40.06 billion shares in issue, representing 42 per cent of the NSE’s total listed shares.
It accounts for 45 per cent of total market capitalisation at the bourse which stands at Ksh2.61 trillion ($25.3 billion).
The biggest winners in the current rally are the government and South African telecoms operator Vodacom, who own 35 per cent of the company apiece, and Vodacom’s British parent company Vodafone who hold a five per cent stake.
The Treasury’s and Vodacom’s stakes are now worth Ksh414 billion ($4 billion) each, while Vodafone’s is worth Ksh59 billion ($573.4 million). Other shareholders, including retail investors, hold 25 per cent of the firm, worth Ksh295 billion ($2.8 billion) as at yesterday’s share price.
Safaricom has spent nearly a decade at the bourse, having listed in June 2008 following Kenya’s biggest IPO that saw the government sell to the public 10 billion shares netting Ksh51 billion ($495.7 million). And this after local and foreign investors placed bids worth Ksh231 billion (2.3 billion) or an oversubscription of 360 per cent.
In the first five years after going public, the price often fell below the listing price of Ksh5 ($0.05), touching lows of Ksh2.50 ($0.02) in 2009 and 2011.
The firm’s profits have grown constituently over the years though, and with them dividends, pulling in new investors. In the year ended March 2017, Safaricom paid a dividend of Ksh0.97 per share, the total payout being Ksh38.9 billion ($378.1 million).
Dyer & Blair Investment head of research Linet Muriungi said that those driving the demand today are also eyeing the potential earnings from a wider rollout of the mobile money service M-Pesa, which has become a leading revenue earner for the firm.
“New and accumulating investors are looking at a medium-to long-term investment horizon and they peg Safaricom’s growth on the possibility of an M-Pesa rollout in Africa, especially following the Vodafone-Vodacom transaction and the resolution passed last year that Safaricom’s directors who represent Vodacom’s interests are expected to abstain from voting on mobile money rollout decisions,” said Ms Muriungi.
Potentially harmful regulatory changes that could have seen the telecoms operator split have also failed to materialise.
A revision of a competition report by the telecommunications industry regulator dropped a controversial proposal in an earlier draft calling for the splitting of Safaricom into separate business units.
When the earlier draft came to light last March, the share price took a hit, dropping to Ksh15.90 ($0.15), but it has subsequently recovered to almost double that level once the threat of the split dissipated.
“When the CA [Communications Authority of Kenya] confirmed it would not at any time in the future split Safaricom, the surge in price was immediate. So this is already factored in in the current rally,” said Mr Wambu.
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