Safaricom share price beat a retreat from a three-week rally that lifted it past the IPO price, dampening investor expectation that a window was opening for them to harvest their investments.
The share gained five cents to trade at Sh4.90 in early trading on Tuesday, up from Monday’s average of Sh4.85 but stayed below last Friday’s closing price of Sh5.
Trading data from the Nairobi Stock Exchange (NSE) showed that there was a deadlock between the sellers who priced their share at Sh4.90 and those who queued to buy at Sh4.85, marking a significant dip from last week’s rally that lifted the stock to a 12-month-high of Sh5.20.
In May last year, a significant fraction of Safaricom’s estimated 830,000 shareholders borrowed from banks to buy the shares in the primary market at the offer price of Sh5 but most have been unable to harvest their investment or exit the counter because of the steady plummeting of the share price to below Sh3.
The negative price movement has left thousands of investors in a tight financial position that demands continued servicing of the loans at an average interest rate of 15 per cent per annum despite the continued erosion of the value of their investments.
On Tuesday, 8.8 million Safaricom shares were on offer on NSE’s live trading board, against demand volumes of 4.3 million shares.
“There are fewer buyers willing to pay above five shillings and this has slowed down activity on the counter,” said Eric Musau, a research analyst at Renaissance Capital.
Safaricom share’s steady rise past its IPO price had stirred retail investor interest with many seeing it as opening an exit window after a 12-month-lull.
A sudden reversal of the share price movement left many disappointed signalling that they have to wait much longer to benefit from the share ownership.
The reversal of the movement after peaking at Sh5.20 should be particularly disappointing to foreign investors who bought the stock at a premium of 50 cents above the locals, parting with Sh5.50 for each of the two billion shares reserved for the international pool.
The rally occurred without any obvious material change in Safaricom’s fundamentals but some analysts linked it to the positive announcement of a possible share consolidation that came with the publication of the company’s half-year results.
The share price has been on a steady decline from a high of Sh8.15 it hit on June 9, its first day of trading at the bourse.
The subdued share price has also eroded Safaricom’s market value from the debut high of Sh326 billion to about Sh194 billion on Tuesday.
“Most retail investors who have been holding the stock were preparing to harvest their investment having fixed that exit price at Sh5.50,” said chairman of the Association of East African Investors Stanley Osango.
Equity analysts said increasing investor interest in the stock is expected to keep the share within touch of its IPO price but Mr Osango termed the dip a “setback” to speculators who were angling for quick gains from the counter.
Last year’s dip in the firm’s market price also exposed commercial banks that had advanced their clients loans to buy shares to massive default risk.
The banks collectively doled out an estimated Sh48 billion to retail investors to buy the share from the primary market.
The borrowers were mainly stock market speculators who hoped that the share price would skyrocket upon listing at the stock exchange to enable them harvest the gains and pay the loans.
Loan repayment records remain bankers’ well guarded secret but Mr Osango reckons most investors were forced by the panicky lenders to sell off their shares below the IPO price to reduce their exposure to bad debts. They have been chasing borrowers to pay the difference from their pockets.
John Wanyela, the chief executive of the Kenya Bankers Association — an industry lobby — has however maintained that commercial banks’ exposure to the share is minimal because the loans were worth less than 80 per cent of the Safaricom IPO price.” Banks that appeared over-exposed will now take a sigh of relief,” said Mr Wanyela commenting on the stock’s recent surge.
Lending money to borrowers who intend to invest in the stock market gained tract with the KenGen IPO in 2006- and the huge uptake of Safaricom IPO loans caused concerns over the banking sectors’ over-concentration of credit risk in one sector of the economy.
Safaricom remains Kenya’s dominant telecoms operator and most profitable company.
Analysts have continued to blame the huge float of shares for the failure of its share price to take off.
The firm has 40 billion shares and is the largest of all the 55 NSE listed companies.
The firm’s turnover grew by 17.8 per cent to Sh40.6 billion in the half year to September generating a pre-tax profit of Sh9.1 billion or 1.7 per cent higher than the earnings during a similar period last year.
Subscriber numbers have also grown to about 14.5 million reflecting an estimated 80 per cent share of the total mobile voice market.
The recent foray by telecom firms into rural Kenya and the recruitment of customers with comparatively lower disposable incomes has seen the average revenue per user (ARPU) drop to Sh466.5 compared to Sh503 last year.
Michael Joseph, the Safaricom chief executive, however says the slowdown in voice revenue — which still accounts for more than three quarters of the company’s turnover — is being offset by higher volumes and diversification into the data business.
Though anticipated regulatory changes such as introduction of mobile phone number portability and the slashing of cross network charges are being seen as possible threats to Safaricom’s market dominance, analysts say the management appears well braced for the changes.
“New business lines such as M-Pesa are contributing to the bottom line and the venture into data business is well timed,” said Mr Musau.
Growth of Safaricom’s mobile money transfer business (M-Pesa) and text message services has seen total contribution of data business to the firm’s revenue leap to 18 per cent (Sh7.2 billion) from 11 per cent in the first half of last year.
Mr Musau said the entry of rival operators such as India’s Essar Telecoms and the French owned Telkom Kenya in the last two years “does not seem to have made any dent on Safaricom’s market share.”
Mr Joseph has announced plans to mop up a fraction of Safaricom shares from the market through a consolidation plan that is expected to take shape next year.
The company’s top management has also launched a drive to market its shares to large institutional investors in South Africa and Europe in the hope that a mass uptake of the stock could lead to natural consolidation and save the company huge costs that come with maintaining a register of over 800,000 shareholders.