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Safaricom share among most expensive telcos, says RenCap

Investors queue to buy Safaricom shares in last year’s IPO: The international investors traded Sh587 million worth of Safaricom’s shares in May, which increased to Sh593 million in June and Sh697 million last month.
Investors queue to buy Safaricom shares in last year’s IPO: The international investors traded Sh587 million worth of Safaricom’s shares in May, which increased to Sh593 million in June and Sh697 million last month. 

High foreign investor demand for the Safaricom share has seen it rise to among the most pricey telecommunications stocks in Africa, an analysis by Renaissance Capital has shown.

Safaricom’s share price to earnings ratio (P/E) stands at 11.2, higher than the average P/E ratio of 7.6 for African telcos.
Data from the Nairobi Stock Exchange show foreign investor demand for Safaricom’s shares has increased consistently in the past three months as shown by turnover figures.

The international investors traded Sh587 million worth of Safaricom’s shares in May, which increased to Sh593 million in June and Sh697 million last month.

Below IPO price

Safaricom’s peers had lower P/E ratios such as Egypt’s ECMS (7.2) and Orascom Telecom, Senegal’s Sonatel (8.7), and Starcomms of Nigeria although some are projected to become more expensive this year.

Zimbabwe’s Econet Wireless with a P/E of 5.6 in 2010 is seen as one of the cheapest telecoms stocks in the RenCap study. “Econet is one of the least expensive stocks not only in the Sub Saharan Africa space, but globally. We prefer Econet to Safaricom in valuation terms,” said the Rencap report dated August 1.

Safaricom’s share price in 2010 remained largely above Sh4 a share, giving a P/E of 10.2 at the time of the RenCap study. The stock has remained below its 2008 Sh5 initial public offering price.

A high P/E ratio denotes an expensive stock which is either over-valued or one whose future earnings prospect looks promising and is therefore in high demand by investors.

Safaricom registered a 12.6 per cent drop in net profit to Sh13.2 billion for the financial year 2010/11.

The company was among Nairobi Stock Exchange’s top ten stocks in terms of dividend yield (amount of dividend in relation to the prevailing price), with last Friday’s standing at 5.4 per cent.

M-Pesa represented 12.5 per cent of the firm’s revenues and “has attractive growth prospects down the road, given that it is becoming more of a payments system,” said RenCap.

Mr Gregory Waweru, an analyst at Kestrel Capital, said in a note relating to the 2010/11 performance that though Safaricom’s average revenue per user (ARPU) dropped 15.7 per cent, customers’ average talk time was higher.

“The resultant ARPU compression as a result of the reduction in the effective minutes yield was compensated by a 58.4 per cent year-on-year expansion in the minutes of usage per subscriber. This supports our view that the declining voice ARPU will be compensated by higher minutes of usage and a higher data ARPU,” said Mr Waweru.

Faith Atiti, an analyst with Sterling Investment Bank, said Safaricom had “strong fundamentals” and would still among the best telcom stocks in Africa to invest in barring last year’s tariff reductions

The stock is among the most liquid at the NSE.

Its price to book value – the extent to which price reflects the net asset value per share of the firm – of 2.39 is just about the average at the NSE.

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