Capital Markets

Safaricom touches Sh5 IPO price as outlook brightens


A customer being served at an Safaricom's M-PESA point. Safaricom shares rose to a high of Sh5 in today’s trading, touching the 2008 initial public offering (IPO) price and the highest level in the past two years.

Safaricom Wednesday regained its position as the most valued company at the stock exchange, boosted by a fresh rise of its share price which touched an intra-day high of Sh5, equivalent to the 2008 initial public offering (IPO) price.

The stock however ended the day at an average price of Sh4.85, a 2.1 per cent gain from Tuesday’s average price, as investor appetite for the stock increased on improved earnings outlook for the sector.

Safaricom’s market capitalisation soared to Sh194 billion, compared to the second most valued company, East African Breweries (EABL’s) market cap of Sh191.3 billion.

“A pricing momentum has been building on Safaricom shares; earnings for the sector are looking up as players are set to raise their calling rates,” said Eric Musau, a research analyst at Standard Investment Bank.

The position of most valued company at the Nairobi Securities Exchange has see-sawed between Safaricom and EABL in recent years, based on the investors’ perception of the performance outlook for the bourse’s most valued firms.

Safaricom shares have remained below the 2008 listing price of Sh5 since September 2010, weighed down by pricing wars in the telecommunications sector which have reduced their earnings.

READ: Price wars threaten survival of Kenya’s mobile phone industry

Mr Musau said the counter has recorded heightened trading in recent sessions, which could lift the stock above the Sh5 IPO price.

Essar Mobile, the operator of yUMobile brand, has announced plans to increase its voice tariffs arguing that the prevailing rates were unsustainable.

Such an increase could be replicated in the industry.

Profit taking from investors who bought the stock at substantially lower prices could, however, limit prospects of further price gains above Sh5.

SIB expects that Safaricom’s performance will be buoyed by the growing contribution of non-voice revenue generated from its money transfer service M-Pesa, and the data business.

The investment bank had singled out a review on the M-Pesa billing tariff that will see the company earn higher revenues from the service, and projected that the full impact of the price increase would be seen in the full-year results.

Safaricom had reported on Thursday that M-Pesa generated Sh10.4 billion in the first six months, representing a 32 per cent growth from a corresponding half of the previous year.

READ: Safaricom lifts outlook after 94pc profit leap
M-Pesa subscribers had risen to 15.2 million from 14.8 million as at September last year, raising the contribution of the money transfer service to the company’s total revenue to 18.6 per cent from 17.1 per cent.

Bob Collymore, the chief executive of Safaricom said when the firm announced its half year results earlier this month that data business had emerged as a key driver for growth in revenues and profitability.

Earnings outlook

“Mobile and fixed broadband are key drivers of future growth. We will invest in all aspects to drive greater digital inclusion,” said Mr Collymore.

Safaricom had suffered from a pricing war started by Airtel last year, which depressed the earnings outlook of Kenya’s mobile phone operators.

The price wars cut Safaricom’s net profit for the first half of last year by 47 per cent.

The firm responded with a 25 per cent tariff raise, which helped its half-year profits jump by over 94 per cent to Sh7.7 billion in the half year ended September 2012.

That performance has spurred investor interest on the counter, pushing the share price up by 7.8 per cent on the first session following the announcement.

SIB projects that the growth in non-voice revenue will cushion Safaricom’s profitability from the declining per usage per customer on voice calls, as measured by the Average Revenue Per User (ARPU).

[email protected]