Friday, March 14, 2008

1st Market changing news today

Safaricom IPO (OFS) is finally upon us after years of procrastinating and politicking (how come nobody is saying anything about Mobitelea?). Firstly, the numbers:

Price: Ksh5/=
Number of shares offered: 10bn
Market value of shares offered: Ksh50bn
Minimum share application size: 2,000
Allocation for foreign investors: 35%
For Kenyans and East Africans: 6.5bn shares
Share application dates: 28rd March to 23rd April
Shares listing date: 9th June
Safcom PBT: Ksh17.2bn for 2006 (will probably hit Ksh20bn+ for 2007); 9.5m subscribers which equates to almost 85% of the market
EPS (assuming '07 PAT of Ksh15bn): 0.375
P/E: 13


  • The potential growth is still there, because only 1/3 Kenyans are using mophos today and one would imagine that this will grow to 50% of the population if the economy picks up its 2002-7 momentum
  • Beyond growing subscriber population, Safcom will be able to leverage higher ARPU from a proportion of its current population
  • Safcom will (if it hasn’t already) go for a full licence so it can also enter the internet provision market
  • Don’t forget mpesa
  • Price forecast: May go to Ksh12, then down but will steadily rise ala Access Kenya

IPO process

  • Kenyans will be chasing Ksh6.5bn, equating to around Ksh32.5bn i.e. a sure oversubscription maybe of around 50-100% given the stock on offer
  • All brokers will struggle to cope with applications-Kenyans typically wait till the last week.
  • Its not yet clear how Nyaga’s customers will be treated given the broker is down, but it represents an opportunity for others to take over 200k customers
  • Assuming refunds will happen, beware that some of your cash will be held up for 3 months minimum.

Wider Implications:

  1. Assuming that Kenyans spend around Ksh40bn on the IPO, the NSE will be drained and may go below 4,500. A buying opportunity? Maybe.
  2. Whatever happens, another Ksh32.5bn will be in the NSE, does it mean counters may be depressed for longer than the IPO period? One for good investors to ponder
  3. Given the anticipated liquidity crunch, I hope GoK introduces dvp to a wider investor population other and has more than one bank involved in the process unlike KCB’s position in previous IPOs, otherwise the banking sector will suffer temporary liquidity issues.
  4. Unless the process is better handled, it could be an opportunity for some broke broker to eat.
  5. It'll remind the outside world that Kenya is indeed capable...

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