Safaricom still the stock to watch

August 27, 2008
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, NAIROBI, August 15 – Safaricom’s debut at the Nairobi Stock Exchange (NSE) elicited strong reactions from investors, leading to a 60 percent price rally on the first day of trading. The share prices climbed to eight shillings from its placement value of five shillings.
 
The excitement with which the share was received, both locally and internationally, underlined a key aspect of Kenya’s growing culture as a destination for foreign investments, where Africa’s best performing stocks can also be found.
 
International fund managers ranked, and still consider, Safaricom as an African company that holds the best hopes for serious global investors to make strong footholds in Africa.
 
Having listed at the bourse at a time when Kenya’s business confidence rating was considered to be at its lowest ebb, the success that the Safaricom Initial Public Offer (IPO) recorded went on to confirm the flexibility of the Kenyan economy.
 
The IPO was initially seen to favour the local investors, something that foreign investors considered a direct attempt by the government, to seek favour with the voters.
 
However, the rosy picture that greeted the listing appears to dissipate as fast as it had come, building up strongly soon after the post-election violence which had almost ushered in a new era for Kenya.
 
On Tuesday, the local investors, who had hoped to make more money by giving their investment more time to mature, appeared to flee from the market, a day after the Central Bank of Kenya (CBK) disclosed that it fought one of its toughest battles against liquidity.
 
The more sophisticated investors, who did not sell their stocks to square their bank loans on the first day of trading, are being forced to sell-off in the wake of rising interest rates.
 
Most of the investors took loans at 15 percent and a gradual appreciation of the Safaricom share price would have given them more room to maneuver.
 
But with most banks adjusting the interest rates to match growing inflation, the rates are limping to an average level of 20 percent, one of the highest over the past years.
 
Conventional wisdom is that an investor, especially in the equity market, is in it for the big kill, like the hundreds of thousands who sold off their shares to repay the bank loans.
 
The share price, which also reacts to market conditions and not necessarily backed by the happenings at the company, has shown a drop these past days, mainly as a result of demand and supply, in this case, supply outstrips demand for Safaricom shares.
 
For the wise retail investors, who may have jostled for a share and failed to get as much, the time to make a fresh move for the Safaricom share is now, when the prices are low.
 
Safaricom’s dominant position will continue to be a factor, even as new players push their way into the market and its continued investment into rural Kenya, is significant, given the battle lines for the subscribers will shift to under-served rural areas.
 
Safaricom’s other main rival, Telkom Kenya, is gearing for a grand reentry into the market with its Thursday’s re-launch of a new corporate image to tackle competition.

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