Capital Markets

Safaricom sets new record as market value hits Sh630bn

BOB

Listed telecoms firm Safaricom’s market value has risen to a record Sh630 billion, placing it in a league of its own at the Nairobi Securities Exchange. PHOTO | FILE

The market value of listed telecoms firm Safaricom has risen to a record Sh630 billion, placing it in a league of its own at the Nairobi Securities Exchange (NSE).

It is now larger than the next three biggest firms put together, with billions to spare.

The company is currently trading at Sh15.75 a share at the NSE, having gained 12 per cent this year and translating to a capitalisation gain of Sh68 billion in the first two-and-a-half months of the year.

At Sh630 billion, Safaricom’s market value is equivalent to half of what the Kenya Revenue Authority (KRA) is expected to collect this year, and is nearly twice what Kenya is paying for ongoing construction of the standard gauge railway between Mombasa and Nairobi.

Analysts reckon the share price rally is being driven by a steady stream of positive corporate announcements and improved financial results that have convinced investors that the company has still got an upside to its growth.

READ: Safaricom stock up 6pc, buoyed by half-year profit rise

The counter has been especially popular with foreign investors, who largely limit significant activity to the big blue chip counters like Safaricom, EABL, Equity Bank and KCB.

“We assess that Safaricom’s share price rally has been driven by investors’ anticipation of the 2014 full year ending March results, which we expect will show continued growth in the company’s non-voice revenue as a share of total revenue as the firm continues its gain from Internet or data up­take and mobile money uptake,” said analysts at risk and research firm Stratlink Kenya.

Safaricom was less than two years ago behind EABL in the market valuation list. Both companies were then valued in the range of Sh270-Sh300 billion.

In May 2013, EABL had become the first company to break the Sh300 billion market valuation mark when its share rose to a high of Sh400.

Safaricom was at that time trading at Sh7.10 a share with a market cap of Sh284 billion.

Since then, Safaricom has enjoyed a price rally that has seen its share price double, resulting in today’s market cap that is more than EABL, KCB and Equity Bank combined.

EABL is currently valued at Sh248 billion, Equity at Sh190 billion and KCB at Sh179 billion.

The four companies together are worth more than half the entire NSE, which currently stands at Sh2.4 trillion, meaning that Safaricom alone carries a quarter of the total market capitalisation.

Analysts said such valuation poses a big risk to the market in case the company’s share price falters.

“A case in study is the performance of the NSE-20 share index in the last two weeks which has been moving in tandem with Safaricom’s share price performance. This creates a big risk to the market especially if the investors rely solely on the indices to depict market performance,” said Genghis Capital analyst Mercyline Gatebi.

Safaricom has more recently been active in the corporate event circles signing deals with banks to leverage on its M-Pesa platform, as well as staking a claim in the nascent cashless transport segment through a partnership on the My1963 card.

The telecom operator, together with rival Airtel, recently acquired Essar Telecom’s (yuMobile) Kenya business worth Sh7.2 billion. The deal left Safaricom with yuMobile’s infrastructure, frequency spectrum and employees while Airtel acquired yu’s 2.6 million mobile subscribers.

Last week, Safaricom announced that it had been allowed to import set-top boxes with the ability to deliver broadband Internet, a plus for its data business. It has also applied for a digital broadcasting licence.

Safaricom is also seen to be benefitting from additional business coming from its leveraging on the nearly 20 million M-Pesa customers. The telco has two major partnerships in place with Commercial Bank of Africa and KCB that offer loan products based on the platform.

KCB M-Pesa allows subscribers of the telecom’s mobile money platform access to loans of between Sh50 and Sh1 million repayable between one and six months.

CBA’s M-Shwari, which has been operational since 2012, has helped the lender raise the number of its retail accounts to 10 million, the highest in country.

Safaricom is also targeting a share of the commission income from the Sh12 billion annual remittances sent between Kenya and Tanzania through a new M-Pesa tie up with Vodacom, a Tanzanian subsidiary of its single largest shareholder Vodafone.

“With a substantial unbanked population transacting mainly in cash, the Tanzania-Kenya corridor represents a significant opportunity for M-Pesa to give people and companies an accessible, low-cost alternative to traditional international remittances,” said the Vodafone director of mobile money and former Safaricom CEO Michael Joseph in a statement.  

The growth of Safaricom’s business, especially M-Pesa, has however caught the attention of the market regulators, who have for long kept an eye on the telco to see whether it abuses its position as market leader.

The Communications Authority of Kenya (CA) announced last month that it had started a process to formulate regulations that will give it powers to automatically declare any firm with more than 50 per cent market share as a dominant player.

The new law provides that the threshold be pegged on control of 50 per cent of the relevant gross market, meaning an operator may be declared dominant if it controls 50 per cent of revenue in specific segments such as voice (either mobile or fixed), data or mobile money transfer.

Safaricom’s market share, as per the latest industry statistics, stands at 75.6 per cent for the voice business, mobile data at 70 per cent, SMS at 93 per cent, and mobile money at 66.7 per cent.

But the Competition Authority of Kenya came out to offer some respite to Safaricom, saying that there is no evidence the company is abusing its position in the market.

READ: Competition authority says Safaricom not abusing dominance