Safaricom share now accounts for 58pc of all NSE stocks

Safaricom’s #ticker:SCOM share of combined investor wealth at the Nairobi bourse touched a high of 58.79 percent on Wednesday after weeks of a steady rise in its stock prices in a period that has seen other dominant stocks shed value.

The telco claimed at least half of the market wealth on March 19 and has been deepening its share of Nairobi Securities Exchange (NSE) wealth since then, with strong gains coming from the first week of October.

Already, the Capital Markets Authority (CMA) has flagged the dominance of five companies — including Safaricom — in the 65-stock Nairobi bourse as a big risk, with the performance of their shares dictating whether the market goes up or down on any given day.

Safaricom share has gained 10.17 percent or Sh3 from October 6 to close trading at Sh32.95, adding Sh120 billion on its market value to take it to Sh1. 32 trillion.

The gain comes in a period when other stocks have shed Sh19.7 billion, cementing Safaricom’s dominance at the Nairobi bourse from 55.94 per cent on October 6.

Safaricom, Equity Bank Group #ticker:EQTY, East Africa Breweries Limited #ticker:EABL, KCB Group #ticker:KCB and Co-operative Bank #ticker:COOP have always accounted for more than 75 per cent of the total investor wealth at the NSE.

But all the dominant firms save for Safaricom have shed value in recent weeks. From October 6, Equity Bank share has lost the most at 5.9 per cent, EABL 5.45 per cent, KCB 5.29 per cent and Co-op Bank 3.03 per cent.

Gerald Muriuki, a research analyst at Genghis Capital, said the telco’s business indicators remained strong and that the fact that it posted a smaller decline in half year results compared to banks’ nine-month had kept demand for its share high.

“Investors are counting on quick recovery in Safaricom as opposed to other key stocks such as banks. Bank profits fell by larger margins and they may struggle for long due to the restructured loans,” said Mr Muriuki.

“For Safaricom, the fundamentals remain strong and recovery may come soon especially if the zero-rated M-Pesa transactions come to an end this December.”

Safaricom’s half year net profit to September dropped six per cent to Sh33.07 billion, with M-Pesa, voice and messaging revenue dropping.

Top banks — KCB, Equity, Cooperative, Absa #ticker:ABSA, Stanbic #ticker:SBIC, DTB #ticker:DTB and Standard Chartered Bank of Kenya #ticker:SCBK — saw a combined 30.2 per cent or 22.56 billion decline in profitability in the nine months to September.

The restriction of alcohol consumption in bars has hit EABL, prompting its profits to fall 39 per cent to Sh7 billion for the year ended June.

Safaricom’s dominance has boosted its influence in Kenya’s equity market.

A minimal fall in the Safaricom share price creates an impression that the market is underperforming despite other counters recording gains.

“Market concentration remains a key risk within the Kenyan capital markets landscape… the top five companies by market capitalisation accounted for an average of 74.14 per cent (in quarter one), the highest in the last four quarters, further increasing the exposure risk that the Kenyan market faces,” said the CMA in its market soundness report for quarter one 2020.

The five counters now account for 78.2 per cent of all the investors’ wealth at the NSE.

One of the factors behind the dominance of the five firms is the drought in big ticket listings at the Nairobi bourse in recent years.

Delisting of firms like KenolKobil and erosion in value of hitherto blue chip stocks like Kenya Airways #ticker:KQ and Kenya Power #ticker:KPLC have cemented the stranglehold by the five firms.

Three of the dominant firms — Safaricom, Equity and Co-op Bank — came into the market during the IPO boom years of 2005 to 2009.

The CMA now says that it needs fresh listings of high value firms to correct the market imbalance.