Kenya: Safaricom Valuation Hits Sh1.2trn As Share Rises To all-Time High

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Telecoms operator Safaricom on Tuesday closed trading at an all-time high of Sh30.75 as investors looking to benefit from the company’s year-end results jostled to take positions ahead of next week’s closure of the books.

Safaricom had initially touched a high of Sh31.25, having opened trading at Sh30.

Tuesday’s price gain means Safaricom now has a Sh1.232 trillion market valuation having made a Sh31 billion gain in a day. The valuation hinged on the company’s control of a large segment of the voice, data and mobile financial services markets.

Safaricom’s financial year closes at the end of this month ahead of results announcement in May and the price rally is being seen as arising from early bets on the stock in anticipation of a higher dividend.

“Safaricom is expected to report fairly good results have set a precedent in the first half of its financial year (total revenue grew 12.1 percent year-on-year and net income rose by 21 percent). This could be a trigger on the demand side of the market as investors are speculating on the telco’s performance,” said Kingdom Securities senior analyst Mercyline Kyalo.

Safaricom’s dividend has in the past three years grown steadily in tandem with capital gains on the stock. In the year ended March 2017, Safaricom paid shareholders 97 cents per share, which represented a 27.5 percent increase from the previous year’s payout.

While local retail and institutional investors are on the buying side, foreigners have largely been cashing in on the share this year.

“Foreign investors are in profit-taking mode, with the share having gained about 16 percent in the year to date,” said Ms Kyalo.

The stock, however, remains relatively expensive going by its price-to-earnings ratio of 24 times or higher than the market average of 14.9 times.

This means that Safaricom investors are willing to put in Sh24 into the company and earn one shilling in return.

NIC Securities analyst Bill Oloo said that although the prevailing PE levels are quite high by Safaricom’s historical standards, investors are likely to keep pumping for the stock given the limited number of highly liquid stocks in the market.

“Owing to few top liquid names to invest in, we still expect Safaricom to continue posting gains in the near term,” said Mr Oloo.

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