Safaricom rallies to record Sh900 billion market value

Safaricom headquarters on Nairobi’s Waiyaki Way. PHOTO | DIANA NGILA  

By VICTOR JUMA

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Summary

• The Safaricom stock, which has been on a sustained climb since 2013, recorded renewed aggressive buying starting March.
• The investors’ sharp appetite for the stock has seen it valued higher than all the listed banks, cigarette manufacturer BAT Kenya and beer maker EABL combined.
• Analysts have constantly upgraded Safaricom’s fair value and it remains to be seen whether the company will maintain its high earnings growth to justify the lofty valuation.

The Safaricom share yesterday rallied to a historic market valuation of nearly Sh900 billion, signalling a strong vote of confidence in the performance trajectory of the telecommunications firm by investors.

The share touched a new all-time high of Sh23 in yesterday’s trading, closing the day at an average market price of Sh22.25.

The Safaricom stock, which has been on a sustained climb since 2013, recorded renewed aggressive buying starting March.

The investors’ sharp appetite for the stock has seen it valued higher than all the listed banks, cigarette manufacturer BAT Kenya

and beer maker EABL

combined.

The telecoms operator now accounts for about 42 per cent of the entire stock market valuation in what has raised concerns over its influence on the Nairobi bourse.

Safaricom’s advance comes amid continued profit growth, market share gains and increased dividend payouts.

Safaricom announced a 27.1 per cent rise in net profit to Sh48.4 billion in the year ended March as sales increased 8.8 per cent to Sh212.8 billion.

Aly-Khan Satchu, an investment analyst and owner of data vending company Rich Management, says the rally is not surprising in light of the firm’s financial performance.

“It is predictable, the results they released were simply off the charts,” said Mr Satchu.

The company could hit a market value of Sh1 trillion if the share price rises to Sh25, a huge figure by Kenyan standards that has been largely confined to statistics of national government finances.

'Quality investment'

Mr Satchu cited Safaricom as one of a few stocks in sub-Saharan Africa that are on the radar of global investors “seeking exposure to quality investments in the region.”

The telecoms firm’s share price performance has diverged sharply from the overall market, which has only made some gains since the start of the year after a two-year bear run.

A total of 37.1 million units of the Safaricom shares worth Sh825.4 million changed hands yesterday at a price ranging between Sh21.5 and Sh23, extending a sharp recovery from a correction that saw the stock touch lows of Sh15.9 in March.

The company’s premium valuation, which has seen it recover from lows of Sh2.7 per share in early 2009, is underpinned by its large market share in voice, data and financial services.

It signals increased investor confidence in the telecoms operator’s future prospects, with early shareholders reaping the most compared to those buying at the current price.

Investors who bought into the firm during its 2008 initial public offering (IPO) at Sh5 per share, for instance, have quadrupled their investment and stand to book a dividend yield of 19.4 per cent in December alone.

Those buying now are betting on the continuation of the company’s strong performance in the future.

Analysts have constantly upgraded Safaricom’s fair value and it remains to be seen whether the company will maintain its high earnings growth to justify the lofty valuation.

The share price rally has, however, narrowed down the prospective returns, with the telecoms operator among the most expensive stocks at a price-to-earnings ratio of 18.4 times.

The counter is valued at 8.2 times its net asset value of Sh2.68 per share or Sh107.4 billion in aggregate.

With the company expected to maintain a dividend payout rate of 80 per cent of profits, continued increase in earnings should see the nominal dividends rise over the years.

Safaricom’s return on equity (ROE) currently stands at 45 per cent, one of the highest among the blue-chip stocks at the NSE ticker:NSE.

Analysts at Standard Investment Bank (SIB) say those buying Safaricom at these levels will rely more on the company maintaining its innovative edge, adding that the key risk is regulatory actions that could force a change in its operations.

“While we do not expect growth and margins to deteriorate in the short term, in light of continued pricing pressure and limited growth potential in number of new users, long-term investor returns are tied to Safaricom innovating faster than the market – guided by past performance we are optimistic management has capacity to do so,” said SIB analysts.