Investing in Safaricom shares: It is now ten years since Safaricom was listed on the Nairobi Securities Exchange (NSE). It was in 2008 when Safaricom debuted on the local bourse, 49-year-old Ivana Adhiambo was one of the thousands of budding investors who hoped to rebuild their lives around Safaricom’s shares.
Her dream was not far-fetched.
The country had just walked out of the worst violence perpetrated since independence in 1963: the 2007-2008 post-election clashes that left 1,100 Kenyans dead, and over 600,000 people homeless. Ivana was among these. She was in the Rift Valley region’s Naivasha town, which was a key epicenter of the violence. After the violence subsided, Ivana took on the Achilles task of rebuilding her life from scratch.
“I had saved Sh. 600,000 with my SACCO. These savings came in handy since I needed capital to restart my life,” says the mother of three. Incidentally, among the most viable options, she could place her money on was Safaricom, a leading telecommunications firm in Kenya. In November the previous year, Safaricom had been granted permission to sell 10 billion ordinary shares and list 40 billion ordinary shares on Kenya’s securities market.
“The shares were very enticing, especially because they were selling at Sh. 5 per share,” says Ivana. This meant that as an investor, I only needed Sh. 10,000 to buy the minimum 2,000 shares. Moreover, Safaricom had just announced a record Sh. 20 billion profit, which was a 15 percent jump from the previous year.
The offer on investing in Safaricom shares opened on March 28th, 2008 and closed on April 23. This means that investors were given 3 weeks to participate. Thousands of investors applied for 46.3 billion shares, representing an over-subscription of 463 percent. Individual investors applied for 22.6 billion shares which represented an over-subscription of 464 percent. Ivana was among these investors.
“I invested Sh. 600,000 with the aim of holding the stock for medium to long term. The company had been profitable over the past few years and I was confident it would continue her profits and become one of the most profitable companies in the region,” she says. Although she applied for 120,000 shares, Ms. Adhiambo got an allocation of 25,200 shares worth Sh. 126,000. “We were allocated 21 percent of all the shares we’d applied for,” she says.
Although the company was looking to raise Sh. 50 billion from the offer, the over-subscription of 363 percent saw a total of Sh. 231 billion put on the table. The stock started trading on June 9 fueled by a wave of expectation and hope. Immediately the counter opened trading on the Nairobi Securities Exchange, it quickly hit Sh. 7.25 per share then shot to a high of Sh. 8 per share during the day. Ivana was ecstatic. “My decision had been vindicated!” she says. However, her joy was short lived. By the close of trading that day, Safaricom was trading at an average of Sh. 7 per share.
Over the next few years though, this would be the only summer that the counter would experience. The effects of pumping 10 billion new shares into the NSE were reflected on the whole market. For instance, the total number of trading accounts opened shot by 849,390 from 896,213 to 1,745,603. In the same vein, by July 11, 2008, NSE’s market capitalization rose to Sh. 1.21 trillion making it the largest ever market capitalization in Kenyan history. In the following days, daily market turnover shot to an average of Sh. 1 billion as the new 10 billion shares soaked the market.
The dreams of retail investors crashed. The stock failed to go beyond Sh. 8 per share and instead started threatening to dip below the listing price of Sh. 5. The noose tightened! The stock fell below Sh. 4, then below Sh. 3. By 2011, the stock was trading at Sh. 2.50 per share as an overwhelming supply of shares flooded the market with few investors willing to take them up! “At first, I was disappointed with my portfolio and quickly exited at Sh. 6, earning Sh. 25,000. I jumped back when the share dropped to Sh. 3 and invested Sh. 600,000,” says Ivana.
Thankfully, the tide began to turn in mid-2013. By August 2013, Safaricom rose to a high of Sh. 7.35 per share at the NSE. By June 9, 2014, six years after Safaricom was listed on the NSE, investors had gained more than double their investment, with the stock trading at a high of Sh. 12.85. By 2014, though, individual investors in Safaricom had sold off 40 percent of their volumes.
However, the few long-term investors like Ivana who took up their shares between Sh. 2.50 and Sh. 7.35 each were smiling all the way to the bank! Among these were NSE billionaires Chris Kirubi, Baloobbhai Patel and John Kibunga. By mid-2013, the three had bought between 5 and 8.6 million shares among them.
The best, though, was yet to come. By August 2016, the stock hit a high of Sh. 21 per share. This meant that Kenyans who invested Sh. 500,000 in the stock had now gained a gross of Sh. 4,200,000! “My price target for this company is Sh. 22.50 per share. The company’s core business is a rock-solid franchise and data remains parabolic in my opinion,” said Aly Khan Satchu, the CEO of Rich Management and a financial markets analyst.
The best was yet to come for Safaricom shareholders. For example, over the past one year, Safaricom has hit an all-time high of Sh. 33.5 0 per share. By the end of trading on July 13, this year, Safaricom’s stock on the Nairobi Securities Exchange was trading at an average of Sh. 28.50 per share. Currently, Safaricom has a market valuation of Sh. 1.13 trillion. And with its continuing innovation, the Safaricom tree can only continue to offer its shareholders ripe and succulent fruits.
“There were investors who cashed in on the investment when the price rebounded from its all-time low of Sh2.50 at around Sh5 as a loss-cutting strategy. But those who were brave to buy Safaricom at its lowest prices when others were fearful and running away are today reaping mega profits if they held on,” says Ndindi Nyoro, the Managing Director of Investax Capital Limited and the MP for Kiharu.
Safaricom Investment in Perspective
An investor who bought 20,000 shares at Sh. 5 per share today has a portfolio that is worth Sh. 565,000. This means that they have reaped a gross profit of Sh. 465,000. Over time, Ivana has sold portions of her shares at over 50 percent of the IPO price but does not consider quitting this counter. “I hold this as a long-term investment and having diversified into other shares, I do not intend to offload. I want to continue growing with Safaricom,” she says.