Foreign investors go for Safaricom share

March 8, 2011

, NAIROBI, Kenya, Mar 8 – Foreign investors have renewed their interest in the Safaricom share price, which has been on a steady decline in the last few weeks.

Safaricom\’s Chief Investor Relations Officer Les Baillie said on Tuesday that many investors consider the share\’s resistance point of between Sh3.60 and Sh3.70, to be an attractive price.

Although there is still a bit of concern with the developments such as the ongoing price wars in the market, volumes have been inching up, he said.

"Towards the end of last week, we saw that international investors are coming back in both the sell and buy sides. I think they are beginning to see that there\’s a good value in that price," said Mr Baillie.

The Safaricom counter has been volatile as it continues to react to the ongoing price wars in the market. A 50 percent cut in call rates has for instance seen voice account for 65 percent of Safaricom\’s revenues down from the previous 80 to 90 percent. This has in turn seen the company focus more on data segment to compensate for this drop.

However, there is still a lot of uncertainty over what will happen in the market once the 90 days of promotion of Airtel\’s products end as stipulated by the Communications Commission of Kenya (CCK) regulations.

"They are saying \’What is Airtel going to do next? How long are they going to keep up with these low prices? Is it sustainable? Mr Baille said of the concerns that the investors have expressed.

But contrary to expectations that international institutional investors would shy away from injecting their money in the country due to political bickering, Mr Baillie disclosed that they are not fazed.

"The political situation doesn\’t really worry them because they are people who are investing in emerging markets such as Sub-Saharan Africa and they accept that there are risks in dealing in those countries such as political risks so they just build that into their business," he explained.

Despite this volatility, the counter has continued to trade the highest volumes at the Nairobi Stock Exchange (NSE) largely because of the huge number of shares in the market (40billion) and its low price.

The amount of the shares in circulation has been of concern to the company which has been mulling ways of reducing it in the hope that such a move would help push up the share price which currently does not reflect the company\’s fundamentals. It remained unchanged at Sh3.85 on Tuesday and many retail investors have left the share in abeyance.

Mr Baillie however admitted that they were running out of options on how to do this.

Safaricom had initially opted for a share consolidation but this is not looking like an attractive option since for instance those who have less than 1000 shares would still end up with less than 100 shares which is below the minimum amount (of shares) required for an investor to trade at the NSE.

This he said would \’disfranchise\’ the thousands of investors with less than 1000 shares as they would be unable to sell them.

"A share consolidation doesn\’t do much because if we say did a 1 for 10, in theory the price would go up to Sh38 or Sh39 and anybody with 1000 shares would then have 100 shares so the value is exactly the same," the Chief Investor Relations Officer explained.

This would also be bad for foreign investors as it would reduce the liquidity of the shares in the market. 

The other alternative for them would be for Safaricom to buy back their own shares, a provision that is prohibited by the Capital Markets Authority Act.

The company has been lobbying CMA to review this law but has not received any feedback yet.

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