Capital Markets

200,000 small investors exit KenGen, Safaricom

ipo

Investors queue to buy Safaricom shares during the company’s IPO. Photo/FILE

More than 200,000 retail investors have sold their stakes in power producer KenGen and telecom firm Safaricom since the two companies went public through initial public offerings (IPO), the latest market data shows.

The divestiture is seen as resulting from a mix of profit-taking and cutting of losses in the two firms that have had mixed performance in terms of dividend yields and share  price movement since their listing.

Investors initially gained a foothold in KenGen in 2006 when the government sold a 30 per cent stake in the power firm to the public – launching what became the Nairobi Securities Exchange’s (NSE) golden age.

The popularity of stock market investing peaked two years later when the government sold 25 per cent of its shares at Safaricom to the public, attracting more than one million new investors to the Nairobi bourse.

Shareholder registers show that the companies had by November 2013 lost a fifth of the retail investors who first bought shares during the IPOs.

Share volumes held by individual investors have dropped 43 per cent in the case of KenGen and 40 per cent in Safaricom, underlining the large sell-offs.

Analysts said the reduced participation of retail investors is largely a reflection of the high-level speculation that dominated investment decisions at the time.

“Most retail investors buy to sell when prices rise. Others hold on for a few years expecting even larger gains and exit if their targets are not met,” said Paul Mwai, the chief executive of investment bank AIB Capital.

“This is a problem of the mismatch between their short-term expectations and actual returns obtaining in the market.”

Mr Mwai added that a longer holding period offers investors a chance to earn the highest return in the stock market, a strategy that is rarely observed among individuals but has been perfected by institutional investors.

READ: Safaricom shares rise to all-time high

The number of investors holding between 100 and 100,000 shares in KenGen dropped from 243,142 in June 2006 to 196,014 in November last year.

More than 47,128 small investors sold a total of 266.8 million shares in the same period, causing the volume of shares held by the retail investors to drop 43 per cent to Sh348.8 million.

The number of investors holding similar volumes in Safaricom dropped from 822,122 to 667,906 after 154,216 small-share retailers sold one billion units of the company’s stock.

This cut the volume of Safaricom shares held by retail investors to 1.5 billion from 2.5 billion during the IPO.

The actual performance of stock held by the exiting investors largely depended on the price at which they sold and whether they stayed long enough to earn significant dividends in the years since the IPOs.

“Those who sold in the early days following the listing of the stocks earned significant profits from the price rallies,” said Eric Musau, an analyst at Standard Investment Bank (SIB).

KenGen’s share price, for instance, rose to Sh49 on the first day of trading on May 17, 2006 from a listing price of Sh11.50, generating huge interest in the stock market.

The power producer’s IPO attracted 275,041 applications that resulted in an oversubscription of 236 per cent. Some of the investors used their refunds to accumulate more shares in the secondary market, bidding up the price.

The government sold a total of 659.8 million shares in the power producer, whose stock has shed 30 per cent of its value in the past six months to stand at Sh11.8, a trend analysts attribute to the planned Sh141 billion rights issue.

READ: KenGen targets Sh15bn in rights issue for growth

Safaricom’s share price also jumped 60 per cent to Sh8 in the first week of trading in June 2008, having been sold in the primary market at Sh5.

The company sold 10 billion shares to the public, attracting local and foreign investors who placed bids worth Sh231 billion, an oversubscription of 360 per cent.

Most retail investors burned their fingers in their maiden stock market venture forcing them to beat a quick retreat, said Mr Mwai.

The losses are attributed to panic selling, a common behaviour among small investors when share prices start to fall, and failure to take profits when stocks surge in anticipation of even higher gains.

Unlike retail investors, institutional buyers – including local and foreign insurance companies, pension funds, and investment firms – take long-term positions that allow them to ride out bear markets and earn dividends.

Safaricom’s performance is testament to the value of long-term investment. The telecom firm’s stock has recently made a strong recovery from a depression that lasted nearly five years – more than tripling value for those who bought when the price stood at about Sh3 in 2010.

Soon after its listing, the telecom firm’s stock fell steadily and stayed below the Sh5 IPO price for a couple of years before reversing the losses three years ago.

Safaricom rose above the Sh5 offer price in December last year and has continued to rally to a peak of Sh13.80 last Friday, opening a profitable exit window for the IPO investors.

Safaricom has also raised its dividend payout in recent years as its profitability soared. The company declared a dividend of Sh0.31 per share for the year ended March 2013 compared to Sh0.22 it paid out the year before.

The telecom firm grew its net profit 45 per cent to Sh11.2 billion in the half year ended September 2013 to Sh11.2 billion and expects better results for the full year ended March.

To stop the big fluctuation in retail investors’ participation in the stock market analysts are urging stakeholders to invest a little more in public education.

“There is need to move retail investors towards a longer-term investment view that is key to earning satisfactory results from the stock market,” said Mr Mwai.

“Those who bought shares during the IPO and continue to hold the stocks have done well overall and can expect more gains in the future,” he added, noting that a passive investment strategy is often recommended for individual investors as opposed to high-frequency trading.

The mass exit of retail investors has happened amid an IPO drought and the successive delisting of firms from the NSE, a move that has firmed the grip of big-ticket investors at the Nairobi bourse.

Auto dealer CMC Holdings became the latest company to go private after AccessKenya – the two firms having been acquired by foreign private owners.