Capital Markets

Safaricom gains Sh36.5bn in first ten days of January

The launch of Safaricom IPO in 2008 by former president Mwai Kibaki and other officials. FILE
The launch of Safaricom IPO in 2008 by former president Mwai Kibaki and other officials. FILE 

The Safaricom stock has gained Sh36.5 billion in the first 10 days of the year, powering the NSE’s total market valuation to just Sh10 billion shy of the Sh2 trillion mark.

Sustained investor demand for the Safaricom share saw it close at yet another all-time high of Sh11.75 in Friday’s trading, lifting its market capitalisation to Sh470.5 billion compared to the opening valuation of Sh434 billion this year.

Stock market analysts said investors’ focus is likely to remain trained on blue chip stocks at the Nairobi Securities Exchange (NSE) such as the expected issue of a Sh172 billion ($2 billion) Eurobond makes the bond market less attractive since the Treasury will be less desperate to raise more debt.

“Investors are taking positions ahead of the expected drop in interest rates due to the Eurobond. The demand on Safaricom is being driven by both local and foreign investors,” said ABC Capital manager for corporate finance and advisory Johnson Nderi.

Safaricom’s capitalisation has gone up by Sh266 billion in the past one year driven by investor expectations of a higher dividend payout by East Africa’s most profitable company.

The telecommunication firm’s 600,000 shareholders have seen the stock price double in the past five months after having braved a relentless decline to a low of Sh2.50, half the listing price in 2008.

The bourse opened the year on an upward trajectory, with the NSE 20-Share Index closing the week at 5,059 points, with capitalisation at Sh1.99 trillion on Friday.

Investment analyst Aly-Khan Satchu who is also CEO of advisory firm Rich Management said he sees more headroom for the stock ahead of announcement of its full-year financial results.

Safaricom reported a 45 per cent rise in six-month net profit to Sh11.2 billion for the 2013-14 financial year, with free cash flow up 167 per cent to Sh13.7 billion.

Mr Satchu also sees the bourse to completing a sequence of three bull-years, having begun a sustained rally in 2012.

“While GDP growth was more subdued in the second half of 2013 than many of us were predicting, I continue to see the main bullish narratives remaining intact. International investors have been the drivers of the bull phenomenon and I continue to see these investors scaling up exposure through 2014,” said Mr Satchu.

He added that another positive catalyst for the market will come from a release of pressure on domestic interest rates via the Eurobond as early as next month, with the lower interest rates further attracting investors into the equity market.

Analysts see the inflation as the major risk on the bull run in the horizon, with Mr Nderi saying that it could come to a halt next year as government spending rises, lifting inflation with it.

Mr Satchu added that the expected hit on the emerging markets by the US Fed taper on its stimulus programme is likely to hurt the markets and currency of the region’s biggest economy, South Africa, more than other sub-Saharan Africa countries.

“The sub-Saharan Africa hinterland markets like Kenya, Nigeria, Ghana and others will discover the Fed’s taper bark was a lot louder than the bite,” said Mr Satchu.

In the past week, the top gainers have been ScanGroup which went up by 17 per cent to Sh55.50, Cement firm Athi River Mining touched a one-year high of Sh98 on Wednesday, with analysts at Genghis Capital saying that investors were factoring in news of the company’s reported plans of building a cement plant in South Africa, potentially tapping into the lucrative region.

However, Standard Investment Bank cautioned that the stock might not have further room to rise, despite of its recent positive run that has seen it gain 40 per cent in the past three months.