In Summary
  • Timing, patience, research, and keeping in touch with your stock broker is key in determining when to make that crucial move — either to buy or sell your shares in a target company.
  • Apparently, when a share nosedives, investors may be tempted to pick it up in the hope that it may be under-valued.

On March 28, 2008, Samson Obura queued for hours at a securities agent’s office in Nairobi .

He was among the 800,000 investors seeking to get a share of Safaricom in the biggest Initial Public Offer (IPO) in sub-Saharan Africa.

“There was no doubt Safaricom would surpass Kenya Electricity Generating Company (KenGen) once it started trading at the Nairobi Securities Exchange (NSE). Safaricom was raking in huge profits and I believed that buying the share at Sh5 was a real bargain,” says Mr Obura.

KenGen’s share had began trading at Sh11.90 two years earlier, and having missed on its IPO, Mr Obura says Safaricom was his moment of redemption.

He invested Sh90,000. The IPO was oversubscribed by 363 per cent with bids worth Sh231 billion and a 669.7 per cent subscription in the local retail pool.

The number of new investors nearly doubled to 1.5 million with more than 700,000 new CDS accounts opened.

While the over-subscription was indicative of a more mature local market, it was bad news for retail investors as each one was allocated 21 per cent of the shares they applied for.

“I received 3,780 of the 18,000 shares I’d applied for. I was refunded Sh71,100,” he says.

But the shocker would come on June 9, 2008. “The share didn’t shoot up, as I had expected. Instead, it stagnated around the Sh5 before heading south.” By September 2008, the share price hit Sh2.50. “The dividend I received was a mere Sh200, whose cheque I couldn’t even cash. It was disappointing.”

HEAVY LOSSES

According to the Capital Markets Authority (CMA), many investors incurred huge losses after securing easy loans from commercial banks to invest in the IPO. Ms Isabella Chebet was one such investor.

“I’d read and heard that IPOs were profitable and though I had never invested in stocks before, I took a Sh200,000 loan to buy the shares.” While her bank took the refund as part of her loan repayment, Ms Chebet, 33, was left with shares she could not sell until her loan was settled. “It was a bitter pill. I don’t think the stock exchange is for people like me and I’ll never invest in shares again.”

Safaricom’s financial results that year did not make things any better. Its profit margin contracted, thanks to price wars from competitors Airtel and yuMobile. In the three years leading to the 2012-2013 financial year, the firm lost a total of Sh2.52 billion.

“The profit dropped to Sh12.63 billion from Sh15.5 billion. However, the company identified data and financial services as its new income streams. This is what has led to its profitability in the half-year results for this year and the strengthening of its share,” says Investax Capital Securities boss Ndindi Nyoro.

Safaricom announced a 45 per cent jump in profit, which saw its share rally to an all-time high of Sh10.20.

Although many retail investors in Safaricom like Mr Obura sold their stake at a loss, others took advantage of the fall in price to buy more.

Josphat Musau, an IT consultant. He invested Sh10,000 at first: “I continued buying even when the price was at Sh2.50. I knew that someday the share would be profitable.” After buying shares worth Sh1.4 million in the past five-and-a-half years, Mr Musau is today smiling all the way to the bank after offloading the shares at more than double his buying price.

He is not alone. Mid this year, the CMA said local large-scale individual investors were taking up the Safaricom share at a higher rate, with millionaires Chris Kirubi, Baloobbhai Patel, and John Kimani leading the pack with between five and 8.6 million shares bought among them.

According to analysts at StratLink Africa, Safaricom revenues and dividends will grow by double digits this fiscal year. This is good news for the shareholders. The share is currently trading at about Sh9.85 while KenGen is at Sh16.05.

Which begs the question: What does it take to succeed at the stock market?

Page 1 of 2