Shareholders’ joy as Safaricom’s share price soars
Safaricom CEO Bob Collymore and chief financial officer John Tombleson during the release of the company’s half-year financial results in November last year. FILE
What you need to know:
Safaricom’s share price touched Sh7.85 on Monday — the highest since it started trading at the Nairobi Securities Exchange (NSE) five years ago — before ceding ground during Tuesday’s trading to close at Sh7.65
The latest share price rally means those who bought Safaricom shares at the lowest point have more than tripled their earnings. Some analysts expect the share price rally to continue in the near term to an average of Sh8.40.
The telecom company’s performance has disappointed many investors since it listed at the NSE — hitting a low of Sh2.50 at one point or half the offer price in 2011.
Telecom operator Safaricom’s share price has risen to an all-time high, offering relief to its long-suffering shareholders who are enroute to proving yet again the value of patience in stock market investing.
Safaricom’s share price touched an average of Sh7.85 on Monday — the highest since it started trading on the Nairobi Securities Exchange (NSE) five years ago — before ceding ground during Tuesday’s trading to close at Sh7.65.
Shedding 20 cents still left Safaricom at a five-year high and as the most improved share price in the past 12 months, having risen more than 106 per cent.
The telecom company’s performance has disappointed many investors since it listed on the NSE — hitting a low of Sh2.50 at one point or half the offer price in 2011.
The latest share price rally means those who bought Safaricom shares at the lowest point have more than tripled their earnings. Some analysts expect the share price rally to continue in the near term to an average of Sh8.40.
Keen followers of the NSE said Safaricom share price’s latest performance was not completely unexpected, citing the company’s full-year results released earlier this year.
The results showed that Safaricom had weathered stiff price rivalry in the preceding financial year to exceed analysts’ forecast.
Kestrel Capital said in its latest weekly bulletin that Safaricom touched its highest average price of Sh7.70 towards the end of last week on the back of active foreign investor interest.
“Safaricom gained 6.2 per cent week on week to its highest recorded average price of Sh7.70 and was the top mover on a volume of 31.4 million shares,” said Kestrel analysts.
“Trading on the counter was characterised by active foreign investor demand across the week’s sessions, with active supply of shares from mainly local investors.”
Years of Safaricom share price stagnation had at one point put its management under intense pressure to reduce the liquidity of the shares at NSE through a reverse split that would consolidate four or more shares into one.
Safaricom has 40 billion shares listed at the Nairobi bourse, making it the most liquid, and a key mover of daily trading.
Consolidating the shares would leave the company’s valuation intact but cut down its liquidity and limit the volatility of its price. Some shareholders even suggested that Safaricom buys back part of the float to reduce the liquidity but capital markets regulations do not allow that.
A similar proposal was made more than 10 years ago after national carrier Kenya Airways’ share price dipped and stagnated below Sh6 or half the Sh11.25 price it was sold in the primary market in 1996.
Like Safaricom, Kenya Airways’ share price fell and stagnated for nearly eight years before taking off in 2003. The share rose to an all-time high of Sh140 in 2005.
KQ’s rise from the ashes was seen as driven by the combination of economic take-off that followed the coming into power of the Kibaki government in 2003.
Kenya’s economy at the rate of 4.3 per cent in 2004 from an average of 0.6 per cent in 2002 — the last year of President Daniel Moi.
Safaricom’s latest share price rally is hinged on good financial performance in the year to March when its net earnings rose by more than 39 per cent to Sh17 billion.
The political risks associated with the March 4 General Election also came to pass leaving a feel-good factor about the Kenyan economy in its wake.
Standard Investment Bank (SIB) has since noted that Safaricom’s higher cash flows of more than Sh14 billion had enabled it to pay higher dividends.
The payout rose by 40.9 per cent year-on-year to 31 cents from 22 cents against SIB’s forecast of 28 cents.
“We were impressed by the strong growth in non-voice revenue which outperformed most of our estimates. SMS revenue growth of 30.4 per cent was particularly surprising when we were expecting a broadly flat performance,” SIB analysts said.
That seemed to have excited investors who have flocked to the market to get a piece of the cake — expecting a repeat performance this year. But even with its latest results, Safaricom has yet to match its peak performance in key areas such as profitability.
In 2008, the company’s earnings before interest, tax and depreciation and amortisation (EBITDA) margin was about 50 per cent but this has since shrunk to 39 per cent indicating that though the firm continues to post a good profit, it gets less for every sales shilling compared to five years ago.
That has been attributed to intensity of competition that has pulled down the mobile termination rates and squeezed margins in the key voice market.
Safaricom’s near-monopoly status in the mobile telecommunications business meant high MTR worked in its favour.
The latest share price rally though in line with market trends is higher than what analysts at Citibank had forecast.
The bank’s analysts correctly predicted higher profits but only expected the share price to rise 23 per cent to Sh5.50 this year and into 2014.
