Why Safaricom share price rally is now pulse of the NSE

News that Safaricom had clinched the coveted license to launch operations into Ethiopia, Africa’s second most populous country sent its share price rallying to a record average of Kes41.75 sending increasing shareholder paper wealth by Sh90.1 billion in a day on Monday, May 25.

At Sh1.67 trillion, the value of Safaricom’s counter hit 62 per cent of the Nairobi Securities Exchange (NSE) and effectively ties the fortunes of Kenya’s capital market to the success of the telco.

The NSE has 65 counters across different sectors of the economy whose total combined capitalisation is Sh1 trillion.

An analysis of Kenya’s capital market value over the last one year shows that Safaricom has been solely behind the real resilience of the NSE.

Coronavirus

Over the past one year, the other 64 counters have dragged downwards dipping below Sh1 trillion from Sh1.2 trillion from January 2020 before the Coronavirus was reported in the country.

Initially risk averse investors dumped shares sending prices plunging when the Covid-19 virus was reported and the government took measures to contain its spread, including limitation on movement, curfews and lockdowns and shuttered some businesses including flights in and out of the country.

Investors noted that this would hurt the economy and many businesses and as was witnessed the economy shrunk into a depression.

Read also: Dividends wet up NSE investor appetite for stocks

While recovery has been noted, it has been sluggish and suffered setbacks on second and third waves of the pandemic even as positive news came with the breakthrough of the vaccines.

At the market most counters at the NSE remained flat because investors did not expect to be paid dividends and held shares for the long term waiting for Covid-19 pandemic effects to pass.

The average NSE 20 Share Index volatility stood at 0.37 per cent slightly higher from previous quarter volatility of 0.35 per cent.

Capital Market Authority policy and strategy Director Luke Ombara said volatility has been on a decline as the market gradually has adjusted to the Covid-19 pandemic as a new normal with investors holding out their positions in view of predictability in dividend announcements and other corporate actions by listed companies especially in the telecommunications and banking sector.

On the contrary Safaricom counter initially dipped when the pandemic hit the shores of the country.

Safaricom started 2020 at Sh1.2 trillion but dipped to a low of Sh975 billion in the middle of March after Covid-19 case was reported in the country.

But as the rest of the market lagged behind, Safaricom share price was climbing back recovering lost ground throughout 2020.

By the start of the year, Safaricom had surpassed its share price and was rallying at Sh1.4 trillion.

It has continued to rally as the company made milestones and even the first decline in profitability in nine years has not dampened the investor appetite.

First investors noted that the Central Bank lifted the moratorium on charging transactions below Sh1,000 and Safaricom was in course of recovering from the decline in profitability and even set for higher earnings since the number of transactions had surged during the pandemic.

Other crucial news that have kept Safaricom quite attractive have been a dividend declaration, launch of 5G and the recent entry into Ethiopia.

Safaricom announced a surprise Sh0.45 per share dividend payout, prompting investors to scramble for their shares pushing the value of the company stocks to an all-time high of Sh38.50 and the paper value of the telco to Sh1.5 trillion.

Read also: Safaricom deploys super-fast 5G internet connectivity

Safaricom then launched Kenya’s first fifth-generation (5G) mobile internet services targeting major urban centres, making it the inaugural operator to offer commercial and superfast services in the region.

The telco also partnered with the NSE to offer a virtual network support to securely connect users as the stocks market upgrades its trading platform.

NSE is replacing the Multi-Protocol Label Switching network that has been used since 2011 with the Software-defined Wide Area Network (SD-WAN) supported by Safaricom.

The entry into Ethiopia was the icing on the cake indicating the teclo will finally be able to expand and reignite its growth in voice and messaging revenues and hosts a potential to launch its extensive products in a virgin market.

The rally of Safaricom share price has continued and with it carrying the value of the entire bourse and attracting investors both locally and abroad.

When Safaricom now literally sneezes, the NSE will catch cold.