Safaricom share price drops as investors react to results

Just above Sh32 billion was wiped off investors' wealth at Safaricom's counter at the Nairobi Securities as the market reacted to a 22.2 per cent drop in earnings for the year ended March 31, 2023. 

Yesterday, the market quoted the telco's share price at Sh14.80 having shed two per cent in value compared to Sh15.30 on Wednesday.  

The telco's profitability stood at Sh52.48 billion, down from Sh67.49 billion posted in 2022.

This is the third consecutive profit fall after it posted a 6.8 per cent profit retreat in 2021 to Sh68.67 billion, which was the first in nine years.

The board has recommended a final dividend of Sh0.62 per share.

Safaricom Plc chief executive officer Peter Ndegwa attributed the drop to harsh economic times that saw customers cut on their voice budget, opting for social media. High investment costs in the Ethiopian market also ate into the profits. 

"We have delivered a solid set of results despite the tough operating environment occasioned by a slowdown in business activity in an election year in Kenya, tough macro environment as well as change in mobile termination rates which impacted our voice revenues significantly,'' Ndegwa said. 

He reassured investors that the business is stable and regained a strong positive momentum in the second half of the year.

Looking into the future, he is optimistic that the business is well positioned to support customers and provide technology solutions as the firm transitions into a purpose-led technology organisation.

Safaricom's share has been on a downward spiral for almost two years now, dropping over 45 per cent in the past 12 months. 

At its peak in mid-2021, when its share price touched an all-time high of Sh44.95, Safaricom accounted for up to 63 per cent of the NSE’s total investor wealth after defying the Covid-19 storm that battered stocks at the market.

Crossing the 50 per cent threshold meant that Safaricom’s market worth exceeded the combined valuation of all the other listed companies.

This raised market concentration concerns given that the top five firms —Safaricom, Equity Group, KCB, EABL and Co-operative Bank —accounted for more than 80 per cent of the NSE’s valuation, while also dominating daily trading volumes.

Yesterday, Safaricom accounted for 48 per cent of the market capitalisation. 

Analysts are divided on what is ailing the NSE giant, but majority, agree that its growth trajectory has been affected by government interference in controlling its charges which is effectively a confiscation of property without compensation.

Early this year, a financial analyst Mihr Thakar alluded to this but projected better times ahead for the telco, insisting that its share price is undervalued if its Return On Equity (ROE) is anything to go by.

"There are indications that its corporate governance is being targeted by the government, amounting to overbearing decision-making. Even so, the firm's share is also likely to gain on expected ventures in Ethiopia after it received approval from the government,'' told the Star. 

This sentiment was supported yesterday by capital markets analysts Allan Bulimu, who saying the market is still shocked by executive decisions touching on Fuliza pricing and board leadership. 

"Investors are walking the dark road with a walking stick. Although the government is a huge shareholder in the business, investors are extra cautious with the new regime,'' Bulimu said. 

In September last year, the telco announced a 50 per cent overall reduction in Fuliza tariffs starting October 1, in a press conference that saw President William Ruto make a surprise appearance.

The head of state said that the reduction in Fuliza charges is part of his government's initiative to ease access and affordable credit to those at the bottom of the economic pyramid.

Two months later, the government launched Hustler Fund, a product rivalling Fuliza and embedded it on Safaricom's mobile money transfer platform, M-Pesa.

Early in the year, the company announced the surprise resignation of its chairman, John Ngumi who had barely served three months at the NSE-listed entity.

The role was quickly handed to Adil Khawaja. 

Yesterday, the telco was granted a license to operate a mobile money transfer in the landlocked country.

It also announced plans to accommodate the Ethiopian unit as its subsidiary by virtue of holding a majority share in the consortium.

The annual general meeting on July 29 is expected to ratify this.