Safaricom shareholders have enjoyed a Sh214 billion gain in their wealth this year after the telco’s share hit a new all-time high of Sh25 on Friday.
The share price rally on the Nairobi Securities Exchange (NSE) saw the telecoms operator become the first listed company in Kenya to touch the Sh1 trillion mark in market valuation during trading.
It has gained 28 per cent this year on the back of increased demand by foreign investors eyeing dividends. It opened the year at a price of Sh19.25.
The stock closed Friday at an average price of Sh24.50, earning it a market capitalisation of Sh981.6 billion — which is 42.9 per cent of the total value of all the 63 firms listed on the NSE.
At this level of capitalisation, the company is now valued at nearly a seventh of the country’s GDP of Sh7.1 trillion.
Safaricom’s share price has received a big boost recently from its steady dividend payouts.
Investors are at this time racing to be on the telco’s book ahead of August 30 deadline for paying dividend of Sh0.97 a share from the financial year ended March.
Last December the firm paid out a total of Sh1.44 a share in dividends, of which 76 cents were for the year ending March 2016 and 68 cents in form of a special dividend.
“Earnings margin improvement and reduced capital expenditure intensity are expected to sustain generous dividend payments going forward,” said Dyer & Blair Investment Bank head of research Linet Muriungi in a coverage note on the telco last week.
The firm has reported consistent profit growth in recent years, leading to a build-up of its cash reserves.
This has seen it grow dividends in recent years, making it a safe bet for investors.
The telco has been paying out about 80 per cent of its net earnings as dividends, an attractive prospect for investors in a market where a rising number of firms are cutting back on retained income.
Higher earnings at Safaricom have been driven by growth in Internet and its M-Pesa mobile phone-based payments business.
Revenue from calls also grew in the year ending in March.
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.
The stock has been flirting with the historic mark for weeks, trading around the Sh23 level since early June.
Safaricom listed at Sh5 a share in June 2008, but shareholders endured a few years of subsequent low prices that culminated in the stock sinking to an all-time low of Sh2.50 a share in 2011.
Long suffering investors who held on to their shares are now being rewarded for their patience, having added billions of shillings in capital gains that have been coupled with a consistent increase in dividends over the years.
Analysts have been upgrading Safaricom’s fair value as its price goes up, with Dyer & Blair issuing it a one-year target price of Sh26.75.
It remains to be seen, however, whether the company’s earnings will grow at a pace to justify the lofty valuations.
Safaricom is also one of the few counters at the stock market which bucked the slump experienced between March 2015 and March of this year.
The telecoms operator now accounts for about 42 per cent of the entire NSE valuation of Sh2.32 trillion, meaning that any move on the stock has a significant effect on the main indices raising concerns over its influence on the Nairobi bourse.
Credit: Business Daily