Safaricom’s proportion of total investor wealth on the Nairobi Securities Exchange (NSE) reached a high of 63 percent on May, 25th 2021, following days of continuous rises in its stock prices at a period when other important counters lost value.
The telecom grabbed at least half of the market value a year ago and has been increasing its portion of the NSE wealth since then, a dominance that makes it impossible for investors to measure the bourse’s success.
Already, the Capital Markets Authority (CMA) has identified the dominance of five businesses — including Safaricom — in the 65-stock market as a major danger, with the telecommunications firm’s performance influencing whether the market rises or falls on any given day.
Safaricom’s share price has risen 8.2 percent, or Sh3.25 a share, since Friday, closing at Sh42.75 on May, 25th 2021, adding Sh130 billion to the company’s market worth, which now stands at Sh1.712 trillion. The total market value was Sh2.72 trillion.
Investors hurried to acquire the company’s stock after it was granted a license to join Ethiopia’s underserved communications market on Saturday.
Safaricom’s share price has risen 45.6 percent in the last year, defying the NSE’s broad bear run, which has been fueled by the Covid-19 outbreak.
Safaricom, Equity Bank Group, East Africa Breweries Limited, KCB Group, and Co-operative Bank have consistently accounted for more than 80% of total NSE investor value. However, with the exception of Safaricom, all of the main corporations have either lost value or risen at a slower rate than the telco in recent weeks.
Equity Bank’s stock has increased by 2.6 percent since Friday, EABL’s stock has increased by 4%, and KCB’s stock has decreased by 2.9 percent.
Safaricom is now 11 times greater than Equity Holdings (Sh158.7 billion), the Nairobi bourse’s second most valuable business, with a market capitalization of Sh1.712 trillion.
“The huge market size of Safaricom has been a source of concern for us for a few months now, with one stock accounting for more than 60% of the market. This means that its movement impacts market movement,” explained Lisa Kimathi, an analyst at Standard Investment Bank.
This disproportionate effect of the stock on the market can also be observed in daily traded volumes, where it has accounted for 70% of the 40.13 million shares moved at the exchange over the last two sessions.
For investors, this has meant that holding Safaricom shares has become a need when constructing a portfolio, with its high liquidity and value retention attracting overseas investors in particular.
“If you’re putting together a portfolio, you can’t ignore the counter. Foreigners want a liquid counter that trades in huge volumes,” Ms Kimathi explained.
Despite other counters seeing increases, a minor drop in the Safaricom share price generates the impression that the market is underperforming.
“Market concentration is a significant danger in Kenya’s capital markets landscape… “The top five businesses by market capitalisation accounted for an average of 74.14 percent (in quarter one), the most in the previous four quarters, further raising the exposure risk that the Kenyan market faces,” stated the CMA in its market soundness report for the first quarter of 2020.
The five stocks now account for 82.8 percent of total NSE investor value.
One of the reasons for the five corporations’ domination is the recent lack of large ticket listings on the exchange.
The delisting of corporations such as KenolKobil, as well as the depreciation of the value of once blue chip equities such as Kenya Airways and Kenya Power, have strengthened the five corporations’ monopoly.
During the IPO boom years of 2005 to 2009, three of the market’s biggest corporations — Safaricom, Equity, and Co-op Bank — entered the market. The CMA now claims that it need new listings of high-value enterprises in order to remedy the market imbalance.
Corporate moves including as the payment of a Sh0.45 per share interim dividend in March, and now the Ethiopia entrance news, have bolstered demand for Safaricom shares in recent months.
After beating South Africa’s MTN to the license, the consortium led by Safaricom, Vodafone, the British development financing agency CDC Group, and Japan’s Sumitomo announced it will begin operations in Ethiopia next year.