Safaricom shareholders’ paper wealth rose by Ksh90.1 billion ($836.8 million) Monday as investors rushed to buy the company’s shares after it was awarded a licence to enter Ethiopia’s underserved telecoms market.
It marks one of the largest one-day gains on a single stock in the history of the Nairobi Securities Exchange (NSE).
The telco’s share price closed at a record average of Ksh41.75 ($0.39) from Friday’s Ksh39.50 ($0.37), giving it a market value of Ksh1.67 trillion ($15.5 billion), the highest since listing at the Nairobi bourse in June 2008.
The consortium led by Safaricom, Vodafone, British development finance agency CDC Group and Japan’s Sumitomo said Monday they will start operations in Ethiopia next year after they beat South Africa’s MTN to the licence.
The rally has taken Safaricom’s share price gain to 45.5 percent over the past 12 months, bucking the general bear run trend on the NSE that has been fuelled by the Covid-19 pandemic.
“The rise was mainly driven by the news of entry into Ethiopia since investors see this as another opportunity for the telco to grow revenues,” said Sarah Wanga, AIB-AXYS Africa head of research.
Ethiopian officials announced on Saturday morning that a Safaricom-led consortium —which includes its South African parent firm Vodacom— won an $850 million auction to acquire a new telecoms operating licence.
The consortium--Global Partnership for Ethiopia--beat its only competitor led by South Africa’s MTN Group whose $600 million was deemed too low.
The entry of the consortium will end the monopoly of the State-owned Ethio Telecom. Safaricom will have a 56 percent stake in the consortium.
The telco’s fresh share price rally has lifted the value of the entire stock market –which it now dominates with a share of 62.3 percent— to Ksh2.68 trillion ($24.89 billion), which is the highest level in 34 months.
The telco was the second highest gainer on the bourse, as foreign investors’ net buying on the bourse hit 136.864 million shares from the net selling of 133.189 million shares on Friday.
The timing of the news meant investors had the weekend to internalise the news, leading to increased activity that saw the share touch an all-time high of Ksh43.45 ($0.4) early in yesterday’s trading session.
Late April news that a consortium led by Safaricom and another one by South Africa’s MTN Group were the only parties to make bids in the auction for two operating licences had already triggered excitement on Safaricom’s stock.
Ethiopia is home to more than 112 million people, making it the second largest country in Africa by population.
The market had largely been closed to external investors but the government started its new policy of opening the economy in 2019 through multiple reforms with the support of the International Finance Corporation.
The award of the licence to Safaricom and the planned sale of a minority stake in Ethio Telecom mark some of the boldest economic reforms in that country.
Entry into Ethiopia presents a significant growth opportunity for Safaricom that reported net earnings of Ksh68.67 billion ($637.78 million) in the year ended March.
The company has dominated the Kenyan telecoms market but growth opportunities in the local industry are limited given the already high uptake of voice, mobile money and mobile data services.
Mobile phone penetration rate in Ethiopia, for instance, stood at 44 percent compared to Kenya’s 100.8 percent in the first quarter of 2019.
“In past years, we have seen the power of digital transformation and its impact on our customers. We believe by working with all stakeholders in Ethiopia, we can deliver a similar transformation while achieving a sustainable return to our shareholders,” Safaricom’s chief executive Peter Ndegwa said yesterday.
The telco hopes that Ethiopia will review its current laws and open up mobile money licence to foreign firms so that it can replicate Kenya’s M-Pesa success story in the Horn of Africa country.