Safaricom holds firm as NSE index rises to five-year high

Exceptional demand for shares drove the Nairobi Securities Exchange (NSE) 20-share index on Tuesday to its highest level since 2008.

The main index was up 23 per cent over last year Tuesday at 5053 points, dropping off Monday’s close of 5058 points. Both days were well above the 5047 points reached on July 28, 2008.

The market capitalisation was marginally higher Tuesday at Sh1.908 trillion compared to Monday’s Sh1.907 trillion. Analysts attributed part of the rally to the rise in shares of Safaricom, which hovered around the Sh10 mark for the second week running.

“Because of its high turnover relative to the entire market, Safaricom’s price rally has contributed quite a bit to the upward movement in the index,” said EmeXea Consulting investment analyst John Kamunya.

The company advises on selling and purchases of existing businesses. The rally also reflects developments in the global stock markets after China unveiled new market-oriented economic reforms and the US said it would extend its monetary stimulus.

On Tuesday, Safaricom traded eight million shares that represented 35.45 per cent of the volume at between Sh9.85 and Sh10.10, just 10 cents shy of its peak.

The offer of a 47-per cent premium in a takeover bid of agricultural firm Rea Vipingo Plantations also lifted the prices of agricultural shares, including Williamson Tea, which was the top gainer on Monday.

Williamson Tea’s price rose about 10 per cent on Monday just as stock market dealers and analysts maintained that the agricultural sector shares were grossly undervalued as their prices should be higher.

Punters believe the value of the land occupied by the farms has not been properly reflected in the balance sheets,, thereby depressing net asset values and, by implication, the stock prices.

“The valuations of agricultural stocks are egregious both on a PE and net asset basis. There are enormous valuation gaps between value of land in the agricultural companies’ balance sheets and their present market values,” investment advisor and data vendor Aly-Khan Satchu said in an earlier interview.

Sasini, which grows tea and coffee, saw its price rise by 55 cents on Tuesday, but traded for as high as Sh15 even though the average price was Sh13.85 the previous day.

Market players said there was higher demand from both foreign and local investors at the bourse.

“We have seen the market indices rise because there has been a lot of demand as well supply,” said Brenda Kithinji, a research analyst at Standard Investment Bank.

Ms Kithinji said the prices of insurance shares were also on an upwards trend in recent weeks.

“Safaricom and insurance shares are some of those that have been pushing the index up even when the turnover has not been particularly high,” said Ms Kithinji.

Safaricom’s projection of strong free cash flows in the year ending next March, pointing to higher dividends for investors than in the last year, is expected to support its share price.

“Investors are now convinced that Safaricom can hold its own and make higher profit even with increasing competition,” said Mr Kamunya.

Mr Kamunya noted that the reduction in political tensions with the conclusion of the General Election had fuelled the rally in the past several months.

The climb in local stock prices has also been seen in neighbouring countries where most of the quoted companies have roots in Kenya.

In Tanzania, the Dar es Salaam Stock Exchange has risen by 25 per cent since the beginning of the year.

The Uganda Securities Exchange (USE) has seen its all stock index rise by 33 per cent in the year to date. There are more Kenya-based companies listed on the USE than on the DSE.