More than 267,000 retail investors have sold their stakes in Safaricom since the telco’s initial public offering (IPO) in 2008, reversing the government’s move to broaden ownership in the country’s most profitable company.
Stock market data shows that the number of investors holding between one and 100,000 shares dropped to 554,499 in July compared to 822,122 in March 2009, resulting in net exits of 267,623 shareholders or 32.5 percent of the owners.
The trend, attributable to a mix of profit-taking and cutting losses over the years, further diminishes share ownership among small investors amid increased de-listings of other firms at the Nairobi bourse and a drought in new IPOs.
Retail investors sold 1.3 billion shares over the 11-year period, more than halving their holdings from 2.5 billion units during the IPO to 1.1 billion units.
Despite the shrinking stake, the value of the retail investors remaining shares has grown more than four times from Sh8 billion to Sh32.4 billion, underlining the impact of Safaricom’s long-term share price rally.
Those who have held on to their shares have also received substantial dividends from the telco, further bolstering their total returns.
Share sales by the small investors have been snapped up by local and institutional investors who now hold a 21 percent stake, excluding the ownership of the government and Vodafone Plc affiliates.
Analysts said the reduced participation of retail investors is largely a reflection of the high-level speculation that dominates their investment decisions and lack of a long-term investment view.
“Unlike institutional investors, a good share of retail investors lack a long-term investment strategy and often sell when prices rise,” said Patrick Mumu, a research analyst at Genghis Capital.
Safaricom’s IPO saw 896,213 new brokerage accounts opened as retail investors lined up to take a slice of the telco.
This more than doubled the number of accounts to 1.7 million, with small investors applying for 22.6 billion units of the telco’s shares or 464 percent of what was allocated for them.
Many Safaricom buyers had hoped for a repeat of the KenGen debut experience in 2006 when the energy firm’s shares doubled their IPO value.
But the telco’s share price soon traded below the IPO offer price of Sh5 per share, leading some retail investors to exit at a loss. It remained below the IPO price for nearly five years.
The share price, however, started its strong recovery in January 2013 when it traded at Sh5 and kept the upward momentum to reach records of Sh33 in April 2018.
The share price rally also encouraged a new wave of selling by small investors seeking to lock in their gains.
The biggest exits have been among those holding between 10,001 and 100,000 shares whose number declined 62.6 percent to stand at 19,433.
They are followed by investors whose ownership ranges between 1,001 and 10,000 whose holdings fell 43.9 percent to 170,980 shares.
Entry-level shareholders with less than 1,000 units have been the most tenacious, with their number declining the least at 21.7 percent to 364,086.
Besides Safaricom, retail investors are losing their clout to institutional investors in other Nairobi Securities Exchange-listed firms, including Kenya Re and KenGen.
Unlike retail investors, institutional buyers including local and foreign insurance companies, pension funds, and investment firms have longer holding periods that allow them to ride out bear markets and earn dividends over the years.
Safaricom has also raised its dividend payout in recent years as its profitability soared.
The company declared a dividend of Sh1.25 per share for the year ended March and special payment of Sh0.62 per stock, bringing the total payout to Sh74.9 billion.
The ongoing dividend distribution takes Safaricom’s cumulative payouts to Sh301.2 billion since the company’s IPO.
This means that the entire capital investment by shareholders, including the Kenya government and UK’s Vodafone Group Plc and its affiliates, has been returned and exceed by dividends alone in the 11 years.
The mass exit of retail investors has happened amid an IPO drought and the successive delisting of firms from the NSE, a move that has firmed the grip of big-ticket investors at the Nairobi bourse.
Some of the companies that have recently been delisted after their acquisitions are oil marketer KenolKobil, motor dealer CMC Holdings and agricultural firm Rea Vipingo.
Human and animal feed producer Unga Group and logistics firm Express Kenya would have also gone private if their acquirers had garnered enough shares to complete their buyouts.
ARM Cement and Deacons East Africa collapsed and went into administration after they became insolvent owing to unsustainable borrowings.
A recent survey established that 88 percent of shares accounts have been dormant for two years, underlining the despondency among retail investors in a period when the NSE has been sluggish.