Capital Markets

Safaricom’s market grip eases amid share price rout


Safaricom PLC headquarters in Westlands, Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

Safaricom’s dominance of the Nairobi Securities Exchange (NSE) has declined following weeks of a rout in the firm’s stock price.

Data from the NSE shows the telco’s dominance measured by its market capitalisation concentration had fallen to 40.2 percent as of Tuesday this week from 48.7 percent at the start of this year.

The stock closed Tuesday with a market cap of Sh613 billion compared to a valuation of Sh967.6 billion at the end of last year.

Read: Safaricom share fall eases market concentration fears

The firm whose valuation was once greater than half of the entire NSE has seen its share price tumble in the year to date driven primarily by heavy sell-offs, especially by foreign investors.

The stock has lost over 50 percent of its value in the past year and traded at Sh14.95 on Tuesday against a 52-week high of Sh34.

While the management of Safaricom has been quick to state that the firm’s current undervaluation is not tied to the company’s fundamentals, analysts have reckoned the telco’s recently reported profit slide is likely to impact its share price in the interim.

Safaricom’s net profit for the year ended March was down 22 percent at Sh52.5 billion as reduced voice revenues and higher operating costs from new capital invested into full commercial operations in Ethiopia.

“Safaricom investors have for some time been looking for anything positive to grasp that could be considered bullish, but those hopes were quickly dashed last week when the telco released its 2022 results. For that reason, the stock is likely to continue charting downward,” observed Canaan Capital Managing Director Rufus Mwanyasi.

The telco has been betting on the Ethiopia entry to realize its next phase of growth but expects the venture to only be profitable after the fourth year.

Safaricom’s share price and market valuation have, nevertheless, taken a beating from the general NSE slide so far this year with the exit of foreigners being the notable reason for the local bourse losses.

Their exits have been driven by rising interest rates in advanced economies which have disincentivised investments in frontier markets with the allure of comparatively higher returns in home markets.

Read: NSE drops Sh226bn as sell-off hits Safaricom, KCB

In the new financial year to March 2024, Safaricom expects earnings before interest and tax (EBIT) to range between Sh75 billion and Sh81 billion with a spending of between Sh40 billion and Sh45 billion in Ethiopia.

Safaricom’s all-time high share price stood at Sh44.66 in August 2021.

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