31 July 2017

Kenya: Safaricom Rallies to U.S.$0.24 on Dividend Deadline

Kenya's telco giant Safaricom shareholders have enjoyed a Ksh214 billion ($2bn) gain in their wealth this year after the telco's share hit a new all-time high of Ksh25($0.24) 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 Ksh1 trillion ($9.6bn) 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 Ksh19.25 ($0.19).

The stock closed Friday at an average price of Ksh24.50 ($0.24), earning it a market capitalisation of Ksh981.6 billion ($9.4bn)-- 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 ($68.2bn).

Steady payouts

Safaricom's share price has received a big boost recently from its steady dividend payouts.

Investors raced to be on the telco's book ahead of August 30 deadline for paying dividend of Ksh0.97 ($0.01) a share from the financial year ended March.

Last December the firm paid out a total of Sh1.44 ($0.01) 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 Ksh48.4 billion ($465.3mn) in the year ended March as sales increased 8.8 per cent to Ksh212.8 billion ($2bn).

The stock has been flirting with the historic mark for weeks, trading around the Ksh23 ($0.23) level since early June.

Safaricom listed at Ksh5 ($0.05) 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 Ksh2.50 ($0.02) 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 Ksh26.75 ($0.26).

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 Ksh2.32 trillion ($22.3bn), meaning that any move on the stock has a significant effect on the main indices -- raising concerns over its influence on the Nairobi bourse.

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