Capital Markets

Safaricom sheds Sh20bn in week of Nasa boycott

A man makes a phone call next to a Safaricom's logo. FILE PHOTO | NMG
A man makes a phone call next to a Safaricom's logo. FILE PHOTO | NMG  

Telecoms operator Safaricom’s #ticker:SCOM market valuation shed Sh20 billion in the first week of opposition coalition Nasa’s call on their supporters to boycott the firm’s services.

The marginal drop in the share price is seen to signal the resilience of the company, which accounts for nearly 40 per cent of trading at the Nairobi Securities Exchange (NSE), and to be a reflection of the fact that investors have yet to get enough information on the boycott’s potential to move the market in either direction.

Some analysts, however, insisted that the political action was unlikely to affect the company’s share price in the longer term, especially because they expect revenue growth to remain on course.

“There is only a small element of the boycott to Safaricom’s share price performance, attributable to investor sentiment. In our view, the slight drop is mainly due to a price correction after release of first half results, and precisely because the 9.5 per cent year-on-year profit growth was lower than anticipated,” said Dyer & Blair head of research Linet Muriungi.

“We may, however, see subscriber growth either stabilise or soften marginally in the short term, where the organic growth in subscriber numbers is offset by those leaving.”

Ms Muriungi said she did not expect a decline in service revenues because the migration is more likely to be in the subscriber base that accounts for low value monthly credit usage rather than among premium customers who account for the lion’s share of the service revenue.

Dividend chase

Safaricom’s performance at the bourse was this month expected to reflect its coming off a dividend-inspired rally, which began after the closure of books on September 15 for the 97 cent payout for the year ending March 2017.

The dividend chase saw the share price rise to an all-time high of Sh27.25 at the end of August. The Safaricom share price has in the past one year oscillated between Sh16 and Sh27.25.

The firm announced a 9.5 per cent increase in after-tax profit to Sh26.2 billion for the six months ended September 30, driven primarily by a good performance in mobile money service, M-Pesa, and data.

Exotix Capital analyst Tracy Kivunyu says in a note on the company that the prevailing political uncertainty affects M-Pesa more than the other revenue stream, and could become a source of discomfort for the firm if it persists.

Already, some of the firm’s agents in opposition strongholds have reported harassment, given that they are easily identifiable in their branded booths and other outlets where they operate.

Exotix says the prolonged uncertainty during the election period had reduced active M-Pesa penetration from 71 per cent in the first half of 2016/17 to 69 per cent in the first half of 2017/18 – pointing to a slowdown in growth of active M-Pesa users at 9.5 per cent compared to growth of registered users at the rate of 12 per cent.

“While we expect a recovery in M-Pesa in the second half of 2017/18, we remain cautious of the political uncertainty coupled with the ongoing 90-day boycott of Safaricom services announced by the National Resistance Movement [wing of Nasa],” said Ms Kivunyu in a report released earlier this week.

Job losses

One of the more damaging effects of any downturn in the company’s fortunes is likely to come in the number of lost jobs.

Safaricom said in its sustainability report released last month that its business sustained more than 823,243 jobs across all its sectors of operation in the year ending March 2017, down from the 845,846 in the previous financial year.

The Communications Authority of Kenya (CA) also weighed in on the boycott earlier this week, warning that it is likely to hurt jobs and investments in the ICT sector, which has been among the fastest-growing in Kenya in the past decade.

Nasa called for a boycott of Safaricom services last Friday when the share price stood at Sh25.25.

The price had dropped to Sh24.75 by close of trading yesterday, cutting the company’s market valuation to Sh991.6 billion from Sh1.011 trillion a week ago.

The opposition has accused Safaricom of being complicit in rigging of the August 8 presidential election, a charge the company has denied.

Share prices at the NSE are sometimes driven by investor sentiment based on issues surrounding a company, even where the company’s fundamentals remain unchanged.