Mystery Investor’s Purchase Stops Plunge in Safaricom Shares

The share price decline in Safaricom, which had reached a 69-month low, was stopped by a mid-week block buy of Safaricom shares by an unidentified local institutional investor, sparking sales of discounted shares.

According to Nairobi Securities Exchange (NSE) data, Safaricom’s traded volume increased to 57.13 million on January 18 from 4.06 million on Tuesday, marking a very large increase for a counter that had recently experienced trading volumes below 10 million for several days in a row.

More local investors hurried to purchase Safaricom stock as traded share volumes increased to 107.51 million. Market observers said the telco had reached its lowest level at the Nairobi exchange, which led to a price increase.

On Wednesday of last week, Safaricom’s share price fell as low as Sh20.60, bringing the telco’s value to Sh825.35 billion—the lowest in 69 months.

As a result of additional acquisitions following the block purchase from one institutional local investor, the share’s price rose to Sh21.75 on Thursday and Sh23 at the end of trading on Monday.

“We saw a small rally driven by sentiments that Safaricom had hit bottom. One local institutional investor started buying than others joined, leading to the price appreciation,” said Kenneth Minjire, senior associate for debt and equity at AIB-AXYS Africa.

On Tuesday of last week, Safaricom’s daily turnover was Sh86 million. The following day, it grew to Sh1.18 billion. On Wednesday, it reached Sh2.2 billion as a result of increased trading.

In the last three days, the telco’s valuation increased by Sh96.16 billion to reach Sh921.51 billion, accounting for 47.1 percent of the NSE’s total market value of Sh1.957 trillion.

Safaricom shares

Due to Safaricom’s dominance, it is challenging for investors to evaluate the performance of the exchange. Safaricom’s proportion of total investor wealth at the NSE peaked at 63 percent in May 2021.

Safaricom’s share price reached levels last seen on May 23, 2017, when it completed the day averaging Sh20.50 when it reached Sh20.60.

The telco’s market value was reduced by more than half from the Sh1.84 trillion it was worth on August 23, 2021, when its share reached an all-time high of Sh44.95, as a result of the share price decline that destroyed Sh975.6 billion in 17 months due to the ongoing exodus of foreign investors.

About 90% of the Sh1.07 trillion that the combined stocks at the NSE lost in value over the course of 17 months was made up by the Sh975.6 billion value decline at Safaricom.

A number of factors, such as interest rate increases in developed economies, the effects of the Russia-Ukraine war, the General Election, and the decline in half-year results, contributed to the telco’s share decline, which experienced the worst decline (54%) on the NSE in the past 17 months. Centum was the next worst performer (48.4%).

A rise in interest rates in established nations like the US reduced the appeal of stocks in emerging markets like Kenya. A large portion of foreign investors owns Safaricom stock.

The US Federal Reserve increased its benchmark rate to a 15-year high by the end of December after being pushed to do so by high inflation rates, making the market more enticing to overseas investors in terms of returns.

Since the interim dividend decision is anticipated to be announced by the Safaricom board by the end of next month, analysts now predict a prolonged recovery in the telco’s share.

“An interim dividend will serve to push up the share price further. There was a lag around the exit of the Safaricom chairman, but the market seems to have overcome this,” said Mr. Minjire.

Midway through November, Dilip Pal, the chief financial officer of Safaricom, stated that the board of the telecom would consider the interim dividend “during January/February once we have a visibility of our full year’s net income.”

George Bodo, CEO of Callstreet Research and Analytics, says he does not anticipate Safaricom to match the interim distribution of Sh0.64 per share, or Sh25.64 billion, declared by the telecom at the end of February last year.

“Safaricom needs a lot of money for Ethiopia operations and may want to conserve cash. I don’t see it matching last year’s interim dividend. But it may choose to surprise investors,” said Mr Bodo.

On October 6 of last year, the telco began operating in Ethiopia and financing the operations with debt.

The management has insisted that the policy of giving out 80% of net profit as dividends to investors will not be affected by Ethiopian costs.

Due to a reduction in the mobile termination rate (MTR) and greater costs related with the entry into Ethiopia, Safaricom’s net profit for the six months ending in September decreased by 10% to Sh33.5 billion.

Total revenue increased by 4.6 percent to Sh153.4 billion during the period, spurred on by M-Pesa income’s 8.7 percent growth to Sh56.9 billion and data revenue’s 11.3 percent increase to Sh26.3 billion.

As a result of the company’s investment in its new Ethiopia subsidiary, voice income decreased by 3.8 percent to Sh39.9 billion, while total expenditures increased by a third to Sh31 billion.