Kenya: Safaricom Shares Account for Half of Sales at NSE

Mergers, Acquisitions and Financial Results

Safaricom shares accounted for more than half of the market turnover recorded at the Nairobi Stock Exchange last year, indicating strong investor interest in the telecommunications firm and bearing heavily on overall movement at the bourse.

Research by Sterling Investment Bank indicates that more than 3.4 billion shares of the listed mobile phone service provider were traded out of the 5.9 billion shares moved at the Nairobi bourse, translating into about 57 per cent of the total market volumes.

Fund managers attributed the high turnover at the counter to the high float of the company's shares in the market. "Safaricom traded the highest volumes because it is a 'cheap' stock offering investors relative stability," said Reginald Kadzutu, a senior fund manager.

The trend was upheld in the first week of trading at the NSE as more than 47 million of the company's shares were sold, out of a total of 77 million in trade dominated by foreign investors.

This comes amid calls from institutional investors to have the share consolidated to mop up the high volumes of the stock that have been blamed for the sluggish price appreciation that has kept the stock trading below its Sh5 per share offer price.

The company's chief executive, Bob Collymore, held investor road shows in Cape Town, Johannesburg, London, Barcelona, New York, Boston and Washington DC where he made presentations to institutional investors who are seen as having the financial muscle to buy the stock in bulk and lead to its natural consolidation. "Given its complexity and legal implications, our board of directors is still deliberating and consulting relevant parties on how best to approach it," said Collymore in an interview.

The firm's shareholder records indicate that local corporate investors owned 86 per cent of the company at the beginning of December, while foreign corporate investors owned 6.2 per cent.

At the time of listing in 2008, the company introduced 10 billion shares to the NSE out of the total 40 billion issued shares in a move meant to ensure that shares of the corporation, then majority owned by the State, were spread to more Kenyans.

The IPO was massively oversubscribed with investors placing offers worth Sh226 billion as compared to the Sh50 billion that the government's 25 per cent stake was worth.

In the share allocation, foreign investors got less than an eighth of the bids they collectively put in, and have generally been strong on the buy side despite the stock's slow price growth which has only managed an all time high of Sh6.

Einsten Kihanda, a fund manager at ICEA Asset Management, said that the high volumes attributed to the counter indicate there is an oversupply of the stock in the market, which has further depressed prices.

"There are too many Safaricom shares in the market which have resulted in the stock selling below its real value," said Mr Kihanda.

He, however, said that a share buy-back could be the only way that the oversupply of the stock could be resolved to pave way for a price appreciation to reflect on the firm's fundamentals.

In the half year results for the period ending June 2010, the company had grown its revenue 15.9 per cent to Sh47 billion at a time when income from non-voice shot up by more than 71 per cent to Sh14.6 billion.

It is expected that revenue from the voice segment would take a hit as call rates declined by more than 50 per cent in the course of the second half of the year.

The company has, however, sought to reduce dependency on airtime sales for revenue and has diversified into data and retail sales of gadgets to plug the income leaks.

The regulatory framework would have to be changed to allow for share buy back, according to Mr Kihanda, who noted that the current set of laws in Kenya do not allow for share consolidation.

"It is definite that Safaricom would drive the volumes this year again," he added.

Demand for the share is likely to push the stock price up to its offer price of Sh5 in the foreseeable future, while a protracted price war in the second half of last year in the mobile telephone industry had dampened the company's prospects.

This saw investors wary of the implications of the price war flee the counter, suppressing the stock price to an all-time low of Sh2.75.