Capital Markets

NSE hits 39-month high on Safaricom and Equity

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Nairobi Securities Exchange trading floor. PHOTO | NMG

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Summary

  • NSE data shows the market recorded the third straight day of gaining to close yesterday valued at Sh2.785 trillion.
  • Market capitalisation was last at this level on April 16, 2018 when it closed at Sh2.794 trillion.

Investors’ wealth at the Nairobi Securities Exchange (NSE) yesterday hit a 39-month high, adding them Sh101.6 billion in the last one month on the back of a rally of Safaricom and Equity Bank stocks.

NSE data shows the market recorded the third straight day of gaining to close yesterday valued at Sh2.785 trillion. Market capitalisation was last at this level on April 16, 2018 when it closed at Sh2.794 trillion.

Safaricom #ticker:SCOM and Equity #ticker:EQTY stocks have added investors Sh54.09 billion and Sh14.34 billion respectively between May 18 and yesterday, accounting for 67.4 percent of the NSE gain during this period.

This has once again exposed the dominance of a few select blue chip stocks, which has made it difficult to gauge the overall performance of the stock market.

Many investors are now guided by the performance of these blue chips at the expense of the more conventionally accepted market indices.

The gains by Safaricom and Equity were followed by KCB’s #ticker:KCB (Sh7.71 billion) and Cooperative Bank’s Sh7.63 billion.

The four stocks now account for 75.6 percent of the NSE wealth — together adding Sh83.77 billion in market capitalisation in the last month.

This means that just four stocks out of the 56 that are actively trading accounted for 82.44 percent of all the additional wealth to investors in the review period. The rest of the market accounted for Sh18.42 billion.

Safaricom’s share has been appreciating for the last three days and closed yesterday at Sh42.60, coming on the day it announced that its consortium has registered a local company in Ethiopia and granted a 15-year licence to start operations.

Analysts are linking the market gain to sustained recovery of business performance across sectors, dividend announcements and payouts and sealing of strategic transactions. 

“Safaricom stock is still benefiting from the news of Ethiopia entry and the piecemeal additional information on the deal such as yesterday’s official granting of licence and registration of operating company,” said Churchill Ogutu, Genghis Capital senior research analyst.

Investors, he added, see Sh43 as Safaricom stock’s resistance level—a level at which further gain is hindered by an overwhelming preference to sell and take profits— but the Ethiopia news has sustained it at these highs.

Safaricom’s gain is also coming ahead of the closure of the shareholder register at the end of the month to pave the way for payment of a dividend totalling Sh36.86 billion in August. 

The telco has pledged to maintain a dividend policy of paying out 80 percent of its net profit despite the over $8 billion (Sh862 billion) required to be injected by its consortium in the Ethiopia market spread over a decade.

Banks, on their part, have seen a gain on their stocks after the first quarter results announced in May pointed to a recovery in contrast to last year.

Central Bank of Kenya (CBK) data released yesterday showed that commercial banks’ four-month profits before tax jumped 32 percent to Sh59.8 billion, defying an overall economic downturn due to the Covid-19 pandemic.

Mr Ogutu said that Equity rally was linked to the recent change in dividend policy to allow for payouts of between 30 percent and 50 percent of net profit going forward.

“Equity’s dividend guidance is gradually bringing positive momentum as investors can now look forward to dividends.  Banking stock investors are also looking forward to next month’s numbers, with many extrapolating the first quarter recovery to reflect in the first half results,” he said.

The momentum in stocks has also been supported by positive corporate announcements among companies such as Safaricom, I&M, Nation Media Group (NMG) and Nairobi Business Ventures (NBV). 

I&M recently announced a bonus issue, NMG has offered a share buyback to investors while NBV has lined up Sh18 billion to launch into cement manufacturing, vehicles repair and airline servicing. 

NMG’s share has, for instance, gained 60.8 percent since the start of the year while NBV has seen a 154.4 percent jump. The NBV share was below Sh1 late last year.

The NSE has now cumulatively added Sh449.17 billion since January, with 31 stocks having added wealth to the investors.

This has effectively wiped out the Sh435.65 billion loss on their wealth in the six months to June last year as investors dumped equities to seek shelter in bonds and gold at the onset of the coronavirus.