- The three stocks recorded a combined gain of Sh183.86 billion since January 1, representing 92.3 percent of the 199.12 billion appreciation of all shares at the NSE.
- The companies’ outsized influence on key market indicators has made it difficult for investors to measure the true performance of the bourse.
- From the outside, the NSE looks to be on bull run and fully recovered from the effects Covid-19 pandemic, as investors bank on a rollout of coronavirus vaccines to keep the global economic recovery on track.
Safaricom #ticker:SCOM, BAT Kenya #ticker:BAT and East Africa Breweries Limited #ticker:EABL (EABL) accounted for 92 percent of the increase in investor wealth at the Nairobi Securities Exchange (NSE) since the start of the year, exposing the distortion of the bourse’s performance by the blue chip stocks.
The three stocks recorded a combined gain of Sh183.86 billion since January 1, representing 92.3 percent of the 199.12 billion appreciation of all shares at the NSE.
The companies’ outsized influence on key market indicators has made it difficult for investors to measure the true performance of the bourse.
From the outside, the NSE looks to be on bull run and fully recovered from the effects Covid-19 pandemic, as investors bank on a rollout of coronavirus vaccines to keep the global economic recovery on track.
But a closer review of the market reveals that a few stocks have dominated the rally, with only Safaricom, BAT and EABL recording double-digit growth since the year started.
Analysts reckon that investors have focused on firms that look set to weather economic shocks and with a tradition of paying dividends.
“The rally is still very restricted and is not the entire bourse. The market is picking up success stories and running with it,” said Eric Musau, the head of research at Standard Investment Bank.
Cigarette manufacturer BAT Kenya is the biggest gainer this year at the Nairobi bourse, recording a return of 21 percent after its share closed trading at Sh437 a piece yesterday.
The EABL share rose 13.2 percent to Sh174.50 in the period under review while Safaricom gained 11.7 percent to Sh38.25.
The telco, on account of its much bigger number of issued shares, recorded the biggest absolute gain in market capitalisation at Sh160.26 billion, accounting for 80 percent of increase in investor wealth at the NSE this year.
Safaricom’s share rally has been linked to the recent announcement of a Sh0.45 dividend payout and the Central Bank of Kenya’s move in December to end free M-Pesa transactions of up to Sh1,000.
The waiver of charges on M-Pesa transactions — which were introduced to encourage cashless payments amid the Covid-19 pandemic —cost telecommunications firm Sh9 billion in the six months to June.
Analysts reckon that investors view EABL as a safe bet at the NSE in a year when most firms are expected to report losses.
The brewer expects sales to recover from a coronavirus-induced slump in the second half to June as nations in the region relax measures to curb the spread of the virus.
The brewer posted a three percent drop in net sales for its first half ended December as sales were pummeled by the closure of bars. Post-tax profit plunged by a third.
Dividends are a factor in the BAT gains. The cigarette make has maintained generous dividend policies for decades that has seen it pay nearly all its net earnings to shareholders.
The firm, whose financial year ends in December, paid an interim dividend of Sh3.50 from its half year to June 2020, when its net profit rose by 5.9 percent to Sh2.6 billion.
The Capital Markets Authority (CMA) has flagged the dominance of five companies — including Safaricom — at the 65-stock Nairobi bourse as a big risk, with the performance of their shares dictating whether the market goes up or down on any given day.
The top five firms at the NSE have grown their share of the market’s total investor wealth to more than 80 percent, up from 65 percent three years ago.
Safaricom alone is worth more than all the other listed firms combined, with its valuation of Sh1.53 trillion accounting for 60.4 percent of the NSE’s market capitalisation.
One of the factors behind the dominance of the five firms is the drought in big ticket listings in recent years.
The firms are also liquid stocks, offering investors an opportunity to enter and exit the counters with ease, analysts say.
Delisting of firms like KenolKobil and erosion in value of hitherto blue chip stocks like Kenya Airways and Kenya Power have seen the five firms cement the stranglehold.
Three of the dominant firms — Safaricom, Equity and Co-operative Bank — came into the market during the IPO boom years of 2005 to 2009.
The CMA now says that it needs fresh listings of high value firms to correct the market imbalance.
“To diversify the number and quality of listed entities the CMA is working with market players – Privatisation Commission, Kenya Private Sector Alliance, and Kenya Association of Manufacturers amongst others in identifying potential issuers within the Kenyan market – both large cap and SMEs as a way of increasing diversity within the Kenyan market,” said the regulator.