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Safaricom share price rally runs out of steam

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Kenyans line up outside a building to buy shares of the Safaricom Initial Public Offer (IPO) in Nairobi. The subdued share price has eroded the firm’s market value. Photo/FILE

Kenyans line up outside a building to buy shares of the Safaricom Initial Public Offer (IPO) in Nairobi. The subdued share price has eroded the firm’s market value. Photo/FILE 

By WASHINGTON GIKUNJU

Posted  Wednesday, December 2   2009 at  00:00

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.

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