Call tariff report raises demand for Safaricom

Mergers, Acquisitions and Financial Results

Safaricom share price has got a boost from the planned increase in calling tariffs, rising by 6.9 per cent in one week as investors anticipate growth in the mobile provider’s profits. The stock has rebounded from a one-year low of Sh2.90 per share last week to Thursday’s Sh3.10 driven by higher demand from investors since last Thursday’s announcement of a possible tariff review. The telco closed its shareholders’ register for a Sh0.20 dividend last Friday.

“Despite going ex-dividend, there has been sustained demand on the counter. This could be attributed to the expected increase in tariffs to cover the operator’s rising operating expenses,” said analysts at Kestrel Capital in a market report. In yesterday’s trading, the counter moved 6.9 million shares down from 15.2 million traded on Wednesday.

 “Large investment firms are selling off in Europe, especially bank stocks, following debt crisis that has seen banks’ credit rating being reviewed and are heading to other markets; that is why you see the resurgence especially in Safaricom which is attractive to them,” said Mr George Bodo, an analyst with ApexAfrica Capital.

Safaricom stock is considered attractive due to its high liquidity and the foreigners’ bullish sentiment towards telecoms in emerging markets.

Last week Safaricom CEO Bob Collymore said the company could no longer absorb rising inflationary pressures and was considering tariff reviews. Information PS Bitange Ndemo also spoke of the expected review, saying that it would be understandable owing to increased network maintenance and fuel cost.

Passing on costs to the consumer is attractive to investors as it cushions the company’s earnings considering that its growth slowed down with start of price wars last year. Safaricom registered a 12.6 per cent drop in net profit to Sh13.2 billion for the financial year 2010/11.

Analysts expect price wars in the industry to stop and focus on add-ons such as data and money transfer services. Safaricom is the only one of the four mobile phone firms that reported operational profit last year while the others are pressed to show returns, hence may follow in upward adjustment of prices. Rival Bharti Airtel has replaced its Managing Director Rene Meza who was seen as the face behind the low tariff charges.
 “We would expect price adjustments in calling rates to be most likely upwards following markets such as Tanzania and India where rates have increased in the recent past,” said
Mr John Kamunya, an analyst with Dyer & Blair Investment Bank.

Since Safaricom is strong in voice, data and money transfer gives it a strong position to continue recording growth in net profits.Telkom Kenya recently launched a high-speed data network.