Monday, July 07, 2008

Safaricom not another Everready

With Everready IPO, some investors can actually say they doubled or tripled their investment. No such luck with Safaricom which was so over-analyzed and possibly manipulated that only the quick-witted managed some 50%+ gains.
Since then, supply has easily beaten demand for the Safcom due panic-selling out of fear that the price may go below the listing price. The difference between Safcom and Everready are readily apparent when one views their books at IPO time. Everready was had been showing falling cash-flows for some yrs before the IPO. Despite the dodgy cashflows, Everready has somehow maintained dividend at the same level. Not the same with
Safcom. Safcom has reduced its borrowings to a managable Ksh6bn and is easily able to pay-off as much of it as possible from huge-cash generation.

Post the IPO, Everready has continued to suffer at the hands of Chinese imports and perhaps its own inefficiencies. Safcom on the other hand will play its cards well and manage to keep at bay competition from Celtel (who by the way is due to pay off its floated bond next yr); Econet (to the Indians have something Celtel hasn't tried) and Telkom (mired in financial difficulties despite GoK paying off a huge chunk of its debt). One can't be blasé and imagine that competition won't get some Safcom customers, on the other hand Safcom is not standing still and will continue to broaden its income sources (including Mpesa, internet and various mobile-related offers such as mobiletv, games et al).

At just over Ksh7, the stock is very well-valued (P/E 20 as of Friday against an NSE average of around 20) although I'll wait to see which way it moves if it does touch the psychologically important Ksh7.


coldtusker said...

a 20 P/E looks cheap... but Essar/Econet might be a handful. Nevertheless, the potential for all the operators is good since usage of data & voice will continue rising.

But the good ol' days are gone!

Ssembonge said...

I think the Safaricom listing is a blessing in disguise for the NSE.

The high number of speculators were turning the bourse into a fish market.

This should shake out all the weak hands are restore sanity into the market.

MainaT said...

CT-I guess we'll shortly find out but my understanding was that without the network coverage, any mobile company is operating with one hand tied behind its back. And network coverage costs big bucks...

Ssem-very true. I pity Co-op bank which will shortly be doing an IPO because it now has to convence a sceptical crowd that they can 100% instantly without nonsense like orders not being booked or refunds by cheque.