Looming rivalry hits Safaricom share

Money Markets

 

Equity’s thin SIM-card. PHOTO | DIANA NGILA 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

The looming competition in the telecoms sector has hit Safaricom share on the Nairobi Securities Exchange (NSE), with investors losing Sh30 billion in the past one month.

A month ago, the corporate giant’s stock was selling at Sh12.90, with a market capitalisation of Sh516.8 billion, but has since fallen to Sh486.8 billion with a share trading at an average of Sh12.15.

A small change in its price normally has huge impact on its value. The share price had lost 5.8 per cent as at last Friday. In the last five trading days alone it had lost 3.2 per cent.

The firm is expected to release its six-month results for the period ending September 30 on Tuesday.

Supported by good results in the year ended March, the firm saw investors flocking to buy the shares before the current decline. The company’s net profit rose by 31 per cent to Sh23 billion in the year to March 31, 2014.

Its free cash flow – an indicator of ability to pay dividends – rose by 56 per cent to Sh22.7 billion. It had earnings per share of 57 cents, out of which it paid a dividend of 47 cents, showing that 82 per cent of the earnings after tax went directly to shareholders.

Analysts saw the decline in price as dictated by the coming into the market by Equitel – a subsidiary of banking major Equity Bank – with its mobile virtual network operator (MVNO) riding on thin SIM-card technology and a customer base of more than seven million.

READ: Equity issuing free Equitel SIM cards to customers

Safaricom has, however, reacted by slashing some of its tariffs on its key anchor M-Pesa platform, a development that has made some investors adopt a wait-and-see attitude on the industry.

“The MVNO issue is what is eating into the Safaricom share. It now has serious competition in the form of Equity Bank, which has a huge customer base,” said Eric Munywoki, a research analyst at Old Mutual Securities.

Mr Munywoki said the fact that Equitel is targeting low-income earners could hurt Safaricom because the same customers could decide to migrate to the services offered by the bank.

However, other analysts argue the size of the market is such that Equitel’s entry does not necessarily mean Safaricom would lose.

“In Kenya, 94 per cent of the payments are in cash. This is a huge market the companies are fighting to capture,” said Linet Muriungi, research analyst at Kestrel Capital.

She said the fall of the telco’s share price was not permanent as the market would continue to experience new developments given the huge cash-based market yet to be exploited.

“This decline in price of Safaricom could be only temporary because the market targeted is big; the pie is quite big and Safaricom will still have its share,” said Ms Muriungi.

1