Safaricom regains position of NSE’s most valuable firm

Safaricom has regained the position of NSE’s most valuable company by market capitalisation after a gradual share price increase helped it to overtake beer maker EABL.

The telecommunications firm, which is Kenya’s most profitable company, had ceded the top spot to EABL last August.

Since then the share price has gained 12 per cent to the current trading price of Sh3.25, from Sh2.90 at the time, boosted mainly by investor expectations that the company had weathered a bruising price competition seen as a major threat to Safaricom’s market dominance.

Safaricom’s market capitalisation stood at Sh130 billion by the close of the market yesterday, Sh1 billion more than EABL’s Sh129 billion as foreign investors drove demand of the telco’s stock.

“Thus far in 2012, the telco is the best performing large-cap,” said Standard Investment Bank in a research note. “Foreign investors have traded on average 86.3 per cent of the stock compared to 48.9 per cent for the total market,” it added.

The top market capitalisation position at the Nairobi Securities Exchange (NSE) has been a two-company affair since July 2008, when Safaricom went public, knocking the beer maker off its perch.

Fortunes of the two companies have lately been greatly affected by regulators in the respective industries, with far-reaching changes affecting their sales volumes and profit margins.

Lowering of cross-network connection tariffs by the Communications Commission of Kenya (CCK), the telecoms industry regulator, resulted in lower calling charges, eating into Safaricom’s profit margins.
A recent report by CCK showed strong growth in minutes of usage for Safaricom —but that was before the October 2011 tariff increase that saw calling rates go up by an average 30 per cent.
According to the Standard Investment Bank report, Safaricom’s management suggested shortly after the tariff increase that they had not seen a substantial decline in minutes of usage, but were non-committal whether the trend could be sustained through the financial year.
“In addition to this, we think M-Pesa is performing exceptionally well with frequent outages being blamed for higher than expected peak transactions per second,” said the analysts.
The Alcoholic Drinks Controls Act introduced in 2010 changed regulations on distribution, packaging and selling of drinks, which has affected sales volumes for EABL.
The CCK quarterly report showed that Safaricom had increased its voice traffic marketshare to 88.27 per cent from 87.57 per cent between April and June last year.
Investors, mostly foreign, have taken bullish positions on the Safaricom share, making it the biggest gaining blue chip at the NSE this year.

International investors
Between 70 and 80 per cent of Safaricom shares bought and sold are from international investors.

“Safaricom has earned investors who purchased the share on the last day of trading in 2011 between 12 per cent and 15 per cent depending on the price you sold at in the past three weeks,” said Renaldo DeSouza, a research analyst at Genghis Capital.

EABL’s share price has been inching downwards as there has been a fall in demand from foreign investors who had been bullish on the share after the firm disposed of its Tanzanian subsidiary in December.

“There was speculation that there would be some gains after the disposal of TBL,” said Mr Eric Musau of Standard Investment Bank.
Possibilities of gains, he added, have been factored in and this is seen by the low volume of shares traded (4,100) on Monday which also saw the brewer’s share price fall by 6.36 per cent to Sh162 from last Friday’s Sh173 closing price.

jgachiri@ke.nationmedia.com