Safaricom’s bid to reduce share float sparks debate

Since listing at the NSE, Safaricom has lost 25 per cent of its value to stand at Sh3.75, which prompted investors to raise the issue at the recent annual meeting with directors.

The huge number of issued shares (40 billion) was cited as the reason why the company paid a dividend of 10 cents per share, which in aggregate amounts to Sh4 billion.

However, even if management wanted to pay a higher dividend, Safaricom is still a fast growing and cash hungry business that demands reinvestment of profits to buy assets to fund future growth.

While investors who bought the IPO have not done well, those who came in later have been picking up good bargains.

While Safaricom is trading 7.41 per cent lower in the last year to date, the share has gained 31.58 per cent in the last six months and 4.17 per cent in the last three months.

Institutional investors looking for a bargain would be happy that they can buy Safaricom cheap and those who bought high can bring down the dollar average cost of their Safaricom holdings by buying cheaper and increasing opportunities for capital gains should it start performing better and equity markets recover.

This is a strategy that worked well for investors who waited for a decade for Kenya Airways share price to rise after it collapsed in the months after its 1996 IPO.