Safaricom’s market value beats all other NSE firms combined

Safaricom’s #ticker:SCOM dominance of the NSE has hit a new peak after the telecommunication firm’s market valuation exceeded 50 percent of the Sh2.22 trillion stock market.

Safaricom’s valuation of Sh1.13 trillion at close of trading Thursday is now 50.7 percent of total investors’ wealth at the Nairobi Securities Exchange (NSE), a factor that is largely attributable to the bear run that has precipitated a sharp drop in the market capitalisation of other listed firms.

Crossing the 50 percent threshold means that Safaricom’s market worth is now more than the combined valuation of all the other 62 listed companies.

Safaricom is still shy of its highest-ever market capitalisation of Sh1.27 trillion achieved in March last year, but the company has avoided the deep erosion of value that other companies have suffered, pulling down the benchmark NSE 20-Share Index to a 10-year low.

The telco’s share price has gone up by 25 percent or Sh5.70 this year to hit Sh28.25, adding more than Sh228.4 billion to its market valuation at a time when many other companies, including other blue chip counters, are stuck in a price slump.

The firm’s huge dominance in the market has seen a sharp contrast in the performance of key indicators, where the NSE All-Share Index and market capitalisation have gained 5.1 and 5.7 percent respectively since January, but the NSE 20-Share Index is down 13 percent to a 10-year low of 2,467 points.

Investors who track the indices are therefore presented with a situation where overall market wealth has gone up by Sh120 billion, but the benchmark index is touching multi-year lows.

The divergence in the direction of the two indices is due to the huge influence the Safaricom stock has on the All-Share Index, which is market cap weighted.

On the price-weighted NSE 20-Share Index, other blue chips such as East African Breweries Limited #ticker:EABL, BAT #ticker:BAT, Standard Chartered #ticker:SCBK and Bamburi #ticker:BAMB that carry a higher nominal share price have a greater weight.

The Capital Markets Authority (CMA) regularly flags the influence the top firms have in terms of traded activity and investor wealth as a market risk.

Should such companies encounter a shock or fall into difficulties, the effect on the stock market would be far pronounced.

“During the second quarter of the year, the top five companies by market capitalisation accounted for 70.8 percent, the highest in the last four quarters, confirming their dominance in the Kenyan securities market,” said CMA in its quarter two market soundness report released earlier this month.

This top-end concentration of market wealth has partly been caused by a lack of large listings at the NSE in the past decade, which has coincided with the growth of the Safaricom share price by more than 700 percent in the period.

The telco’s valuation gain has been helped by its high profitability that has in turn driven up shareholder dividends.

Safaricom reported a 14.7 percent growth in net profit to Sh63.4 billion in the year ending March 2019, on the back of strong M-Pesa and mobile data performance, marking a seventh straight year of a rising bottom-line.

The firm is paying shareholders a dividend of Sh1.25 per share, totalling Sh50.08 billion, and on top of that a special dividend of Sh0.62 a share totalling Sh24.84 billion.

This performance sharply contrasts with that of many other NSE firms, which are struggling to remain profitable in a tough economy.

Since June 2018, a total of 16 listed firms across different market segments have issued profit warnings, with their earnings collectively plunging by more than Sh14 billion.

A firm’s share price normally suffers when it issues a profit warning, which carries the promise of reduced dividend earnings for shareholders.

Nine out of the 13 segments of the market have recorded a drop in market capitalisation, the worst hit in relative terms being the commercial and services sectors whose collective valuation has fallen by 55 percent or Sh43.5 billion this year to Sh35.2 billion.

The manufacturing segment has seen a marginal decline of 1.4 percent in capitalisation from Sh219.2 billion to Sh216 billion, while construction has gone down by 15.7 percent from Sh61 billion to Sh51 billion.

Insurance firms have also declined in value, by 18.6 percent or Sh15.7 billion to Sh68.8 billion, while the energy segment’s collective market capitalisation has come down by 15.8 percent or Sh12 billion to Sh63.7 billion.

The banking sector, which is the second-largest at the NSE after the single-stock telecommunications segment, has eked out a 0.3 percent gain in market capitalisation to stand at Sh626.5 billion. Bank stocks have recorded a mixed performance in the market despite the sector remaining one of the most profitable at the NSE, with five out of the 12 listed lenders seeing their share prices fall this year.

Central Bank of Kenya data shows that in the six months to June, banks in the country recorded a 12.6 percent increase in gross profits to Sh85.8 billion.