Safaricom post-IPO investor wealth rises to $13bn peak

The Safaricom stock hit a historic peak last Friday, closing at a high of Ksh32.80 ($0.32) per share, thereby swelling investor wealth eightfold since its listing on June 9, 2008, inclusive of dividends.

Shareholder wealth as measured by market capitalisation has now touched Ksh1.314 trillion ($13.14 billion), representing an increase of a whopping Ksh1.114 trillion ($11.14 billion) from the time the company listed 40 billion shares at Ksh5 a share 11 and a half years ago.

When the company’s cumulative dividend pay-out totalling Ksh301.2 billion ($3.012 billion) over the 12-year period is added, Safaricom investors have enjoyed a return of 708 percent on initial investment of Ksh200 billion ($2 billion). The dividend alone has been enough to allow investors to recoup their capital at listing and remain with an additional Ksh101.2 billion ($1.012 billion) balance.

The gains last week also pushed the company valuation as a share of the entire market to 50.4 percent and underlined its dominance on the stock market. Crossing the 50 percent threshold means Safaricom’s market worth is now more than the combined valuation of all the other 61 listed companies.

Analysts have attributed the rally in the last one year to sustained foreign demand, with the growth in dividends being a key factor in driving its attractiveness to investors who have few other options to make money in the market.

"The feel-good factor surrounding Safaricom has spilled over into the New Year, on bullish sentiments by foreign investors," said Standard Investment Bank analysts in a note.

Last year, the stock led the market in net foreign inflows at Ksh4.6 billion ($46 million), which backed a share price gain of 42 percent to Ksh31.50 between January and December 2019. During the year, foreign investors accounted for 75.4 percent of total traded volumes on the counter.

Since the beginning of this year, the stock has gained 4.1 percent. The company’s ability to continue to generate record profits — combined with a generous dividend policy that sees it pay out 80 percent of net earnings to shareholders — helped maintain demand through a bear run that gripped the NSE between 2015 and mid last year.

Safaricom has managed to make large capital investments in telecommunications infrastructure, introduce new services and pay incremental dividends with minimal debt and without seeking additional funding from shareholders.

The firm has therefore been able to build up cash reserves quickly, culminating in two special dividend pay-outs in the past four years.

In the year ended March 2019, the company declared a final dividend per share of Ksh1.25 and an additional special distribution of Ksh0.62 per share, bringing the total to Ksh74.92 billion ($749.2 million).

M-PESA

It had also paid a special dividend of Ksh0.68 per share during the financial year ending March 2017, on top of an ordinary dividend of Ksh0.97 a share.

Driven by growth in M-Pesa revenue, the firm’s net profit for the year ending March 2019 rose by 14.7 percent to Ksh63.4 billion ($634 million).

In the six months to September 2019, its profits recorded a similar margin of growth — 14.4 percent to Ksh35.65 billion ($356.5 million) — again on strong M-Pesa and mobile data revenue performance.

Egyptian investment firm EFG Hermes Holding said in their 2020 yearbook markets report that the rise in profitability and market capitalisation of Safaricom and large banks, while the rest of the market lags behind, will see their dominance become more entrenched at the NSE.

These are the stocks most likely to benefit from an expected return to the equities market by local institutional investors, who have in the past three years tended towards the fixed income segment. "Local institutions remained invested in fixed income for most of 2019, but the impact of the rate cap repeal on local rates and monetary easing could force more local institutional money back into equities in 2020," said EFG Hermes in the report.

Safaricom’s influence on the market has, however, had the effect of skewing the performance trends of the main indices, depending on whether they are weighted on price or market capitalisation.

The market cap weighted NSE All Share Index is currently at a 16-month high of 171.36 points, reflecting the positive effect of the huge weight that Safaricom has on the index due to its valuation.

On the other hand, the price weighted NSE 20 share index, where blue chips with a high nominal price (such as BAT Kenya, Bamburi, EABL and Standard Chartered) carry more weight, has benefitted less from Safaricom’s gain.

It closed at 2,701 points on Friday, which is below its 2020 high of 2,707 points recorded on January 3.