Safaricom Makes Huge Profits, Disappoints Local Retail Investors

Despite making a huge profit, local retail investors are not impressed by “Eastern Africa’s most successful “company, Safaricom. The mobile operator announced pre-tax profits of Shs 20.9 billion, but its dividends remain at the level local retail investors are calling “ridiculously low.”

Huge Profits, Small Dividends

The total declared dividends amount to Shs 8 billion. Of that amount, retail traders got Shs2 billion and that amounts to only 20 cents per share.

From previous experience local share buyers are interested in immediate share price appreciation so that they can resell their shares at a profit. That is why they go in large crows for Initial Public Offerings (IPOs), especially fuelled by government policy to disinvest from public corporations.

Disappointed Investors

Apart from Safaricom, none of other companies that have sold shares have disappointed the investors. So certain has been the profit-making trend that many small investors get loans in order to buy shares which they immediately offload at the Nairobi Stock Market – at a good profit.

Not so with Safaricom. In the first place, Safaricom sold millions of shares in an effort partly to satisfy local clamor and partly to raise more capital. The result was that millions of shares, making more than a half of all shares traded at the NSE, are daily offloaded onto the market. The price of the stock continues therefore, to be among the lowest at Shs 5 in a market where less profitable companies have shares fetching close to Shs500. In deed, many of them have had to issue more shares to their shareholders to bring down their share prices to affordable levels.

Safaricom’s policy of retaining the greatest part of its profit for “development” has also compounded problems for the local retail share buyers. As many analysts have pointed out, the policy is good, for investors looking for long term capital gains (share price increase). But that is to miss the point on the motive and character of the most of Kenyan share buyers.

And the fact that the shares were limited to 420 shares per buyers has made the whole affair a nightmare for traders. Last year, for example, the dividends were 10 cents per share. And this category of share buyers, the total dividends amounted to Shs42 – just about a half US dollar. How do you repay your loan at that rate? (Don’t try to put that question or any other to Safaricom. A two-minute call to the mobile company will wipeout your dividends and put you in the red).

Safari com has a total of 34,315,985,679 shares.
Of the profits, UK-based Vodafone which has a 40 per cent shareholding, got Shs 3.2 billion while the Kenya government with 35 per cent shareholding, got Shs 2.8 billion. Foreign investors – both individual and corporate – received Shs450 million.

Related posts:

1. What is Really Happening at the Safaricom?

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