Investors at the Nairobi Securities Exchange (NSE) have seen their paper wealth fall by Sh116.57 billion in three days since Safaricom announced a 22.2 percent drop in net profit for the year ended March.
Market capitalisation — the value of all stocks at NSE — dropped to Sh1.448 trillion on Monday from Sh1.564 trillion last Wednesday, which preceded the telco’s latest financial results.
Analysts tie the decline to the sustained capital flight by foreign investors, with Safaricom being among the firms suffering the highest net outflows and low demand from local investors.
This is amid the weakening shilling against the dollar and difficulty in accessing the greenback, hurting returns for foreign investors.
Safaricom posted a 22.2 percent decline in net profit for the year ended March to Sh52.48 billion, reflecting the impact of heavy investments and startup losses in its Ethiopian operation.
“Many investment bankers in the market believe that on one side, the company is trading at a huge discount to its fundamentals. However, there has been sensitivity by foreign investors to the stock performance,” said Ronnie Chokaa, a financial analyst at Genghis Capital.
“Foreign investors have been moving their capital out of emerging markets to cash and cash equivalents in developed markets which are making higher returns. Since Safaricom account for a large share of the NSE market cap, any changes in the stock will affect the whole market.’’
Safaricom’s market cap lost Sh92.15 billion in the three trading days to close at Sh520.85 billion on Monday. This is after its share price fell to Sh13 from opening at Sh15.3 last Thursday.
“With over 40 billion shares trading while foreign investors have been selling, the local market has not been taking up the stock. The corporate structuring in the listing of the stock means lower demand than supply leading to lower price of the stock,” said Mr Chokaa.
He added however that the market is not alarmed by the fundamentals as the company has evolved from a telco to a fully-fledged tech firm.
Safaricom rolled out operations in Ethiopia about seven months ago and projects that the unit will break even in the fourth year of operations, as the unit requires significant investment in the initial years.
