Safaricom stock defies bear run as NSE 20 index hits 7-year low

The Nairobi Securities Exchange (NSE) index of 20 blue-chip companies closed last week below the psychological 3,000-level.

The NSE 20-Share Index hit a seven-year low of 2,971.10 on Friday after several months of losses.

With levels that were last seen in late 2009, the bourse presents a mixed bag for investors. While some are seeing the value of their shareholding get massively slashed, others are buying up high-potential shares at a deep discount.

However, local investors appear wary of putting their money at the NSE. Of every 10 participants at the bourse last week, more than eight were foreigners. Foreign investor participation stood at 86.1 per cent.

Price falls

All three NSE indices closed last week in the red, largely a result of price dips in companies with large market capitalisation (large caps).

“Year to date, the top five large caps have recorded price falls, with Safaricom, EABL, Equity Group, KCB and BAT shedding 6.3 per cent, 11.9 per cent, 14.2 per cent, 7.8 per cent and 6.5 per cent, respectively,” Standard Investment Bank noted in a research note on Friday.

But of these five large caps, Safaricom has been a popular target for investors the last five years.

Last week, it drew the highest net foreign inflows, and together with East African Breweries Ltd, accounted for three-quarters of market activity.

It has single-handedly muscled out 11 banking stocks – which also command the better part of activity on the bourse – managing to shake off the slow start that defined its entry at the NSE.

Safaricom was welcomed to the bourse on June 9, 2008, and according to the NSE, increased the number of listed shares to more than 55 billion from 15 billion.

By introducing a high volume of shares at Sh5, Safaricom set up the building blocks for its popularity. It made it possible for hundreds of thousands of investors, even those with just 2,000 shares (worth Sh10,000 at the time), to grow their portfolio from the slightest upward price movements. Few other stocks offer similar value.

During its initial public offering, the firm registered an oversubscription of 532 per cent – the fourth-highest in NSE’s history – and drew in about 800,000 Kenyans.

According to the Capital Markets Authority (CMA), Eveready East Africa holds the oversubscription record at 830 per cent, followed by NSE Ltd at 764 per cent and then Scangroup at 620 per cent.

On the first day of trading, Safaricom’s share price shot up 47 per cent, but this performance did not last longer than three months.

As retail investors, most of whom had 2,000 shares, cashed in on the price gain, the stock was driven to below its offer price. Pundits then painted a gloom future for the counter, which saw the shares sink even further.

Three years later, in 2011, the share price was see-sawing between Sh2.55 and Sh6.

Things began to look up for the stock in late 2012 as plans laid out by the telecommunication firm’s CEO, Bob Collymore, began to pay off. The move to segment customer needs and upscale mobile money platform M-Pesa soon reflected at the bourse, with the stock seeing green shoots of recovery.

ANNUAL GROWTH

On Friday, Safaricom traded 12.9 million shares at between Sh17.85 and Sh18. At this level, the volume of shares traded by the telco is higher than the shares moved by the other 63 stocks at the NSE combined.

On Friday, the banking sector with 11 stocks moved 3.5 million shares – seven times less than Safaricom did.

Now with a market capitalisation of Sh851.3 billion, Safaricom has rewarded investors who took a long view, and Mr Collymore is bullish about moving the counter to Sh1 trillion on sustained financial performance.

On market capitalisation, Equity Bank at about Sh113 billion comes second, followed by Co-operative Bank at Sh63.8 billion. Other counters have much lower values.

In last year’s bear run, while 59 stocks lost their ground, Safaricom was among the few counters that put a smile on investors’ faces. It posted annual growth of 15 per cent – though KenolKobil registered a 46 per cent gain. Other stocks that impressed were Kenya Airways (+22 per cent), Longhorn Publishers (+8 per cent) and British American Tobacco (+7 per cent).

For Safaricom, a 38 per cent growth in net profit for the full year ended March, followed by 32 per cent growth in earnings to Sh23.9 billion in the 2016 half year increased investors’ confidence in the share. This, added to the issuance of a Sh0.68 special dividend, strengthened the share further.

According to NSE’s 2016 report, the counter was the biggest mover, with 2.3 billion shares changing hands at between Sh15 and Sh21.75. This represented 40.39 per cent of last year’s traded volume.

With this rally, to date, the share has generated more than Sh600 billion, with shareholders receiving Sh73 billion in dividends.

The growth in eight years has seen investors receive a compound annual growth rate of 20 per cent, with the share outperforming the NSE 20 by more than 200 per cent.

The index, which tracks the performance of 20 stocks deemed to reflect the prevailing conditions at the bourse, lost 21 per cent to settle at 3,186.21 at the close of last year.

The direction of Safaricom’s share price has defied the slump at the bourse, instead reflecting the company’s financial performance.

Collymore said his vision for the company does not include it sitting as a “dumb data pipe”, but as a platform at the centre of a web of connected users and their devices.

If actualised, this may keep the smile on the faces of its 600,831 investors.

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