Capital Markets

Safaricom stock touches record Sh600bn at NSE

Safaricom hit a record Sh600 billion valuation on December 9, 2014. PHOTO | FILE
Safaricom, which has seen its year-to-date gain in share price rise by about a third, hit a record Sh600 billion valuation on December 9, 2014. PHOTO | FILE  NATION MEDIA GROUP

Safaricom’s market valuation touched an all-time high of Sh600 billion after its share price rose to Sh15 in Tuesday’s trading, the highest since its listing seven years ago.

The telecoms operator’s share price has been on a bullish streak in the past 24 months driven by demand from local investors who analysts say are attracted by its future prospects.

Safaricom was in the early days of its listing at the Nairobi Securities Exchange (NSE) a source of pain for first-time investors who had bought in the hope of making a killing only for the share to drop below the subscription price of Sh5 where it remained till late 2012.

The stock has, however, rallied as Safaricom’s competitors struggled to eat into its market dominance and the telecoms giant entrench its position in the financial services market with Mpesa — a mobile money solution.

“One thing we have learnt is that investment is a matter of patience because things don’t work out when investors want,” said Johnson Nderi, the corporate finance and advisory manager at ABC Capital.

Safaricom’s share price dropped marginally Wednesday’s trading to close at Sh14.65 with 9,358,200 shares having changed hands. This left the company with a valuation of Sh586 billion.

Stagnation of the share prices despite robust profitability had seen Safaricom’s management consider share consolidation which it could not execute for lack of a legal framework.

Safaricom has in the past seven years created different lines of businesses, including mobile money, data and sale of electronic devices.

Last week, Safaricom which is Kenya’s most profitable firm, launched the 4G network in Nairobi and Mombasa giving it a chance to deliver broadband internet to homes – a market that has previously been dominated by Faiba and Zuku.

“These latest developments have put Safaricom in a class of its own so investors see it as a good company to buy into even if it is a bit pricey,” said Eric Musau, a research analyst with Standard Investment Bank.

Mr Musau reckons that telecoms operator’s share is overpriced but recent positive news makes it attractive to foreign investors looking for exposure in the country.

Standard Investment Bank has given the stock a fair value of Sh12.50.

Parliament recently approved the award of a Sh15 billion security surveillance tender to Safaricom from which it got the spectrums it needed to launch the 4G network and is set to earn an annual management fee.

Besides, Safaricom has also entered the cashless payments business in the matatu sector through My 1963 opening another revenue stream.

The company has disclosed that it has an interest in My1963 whose services President Uhuru Kenyatta officially launched last month.

Safaricom is pursuing a multi-pronged approach to reap from the cash-lite matatu policy by rolling out its own commuter card and also assigning M-Pesa paybill numbers to matatu operators to facilitate cashless payments.

Analysts also said Safaricom’s latest share price rally meant the telecoms giant has shaken off concerns over Equity Bank’s impending entry into the mobile money space through a subsidiary, Equitel.

“The catch here is that all the 40 plus banks can go to Safaricom and deploy their products while Equity is trying to create its own platform leaving it with a much higher hurdle to jump over,” said Mr Musau.

Safaricom has more than 20 million subscribers on its M-Pesa platform giving it a better understanding of the mobile money market and has embarked on an aggressive customer loyalty campaign to reward users of M-Pesa.

Equitel is a partnership between Equity Bank, the lender with the largest customer base and Airtel which Kenya’s second largest telecoms operator.

Airtel and Orange are currently Safaricom’s only competitors in the voice business following the exit of India’s Essar Telecom, the operator of Yu network.

Orange is also looking for an exit plan citing challenges in breaking even despite pumping money into the Kenyan operation. Safaricom has acquired Yu’s infrastructure in an effort to improve the quality of its services especially in densely populated areas such as Nairobi.

Safaricom is working closely with KCB, the largest bank by capital base and a fierce rival of Equity.

Besides, Safaricom has a partnership with CBA, a medium sized bank which manages the M-Shwari platform. The partnership has catapulted CBA to becoming the second largest retail lender in Kenya.

Safaricom announced a 30.6 per cent growth in after-tax profits for the six-month ended in September 30. It made a net profit of Sh14.7 billion against revenue of Sh79.3 billion.

“Announcements of their half year results are usually followed by road shows to investors internationally which creates demand,” said Mr Nderi.

Safaricom is also the largest seller of mobile phones with a network of shops that registered a 40 per cent growth in handset sales to Sh3.1 billion in the six months to September.

It recently modified its systems by sending alerts to callers whose phone calls do not go through, notifying them that the other party is now available to receive the call contrary to the past where the alert was sent to recipients of the calls.

The new alerts are more proactive than the previous ones as the person in need of making the call is notified.