[2008-07-14]  Top Stockbrokers Reap Big Rewards From Safaricom Listing
Stockbrokers are enjoying an unprecedented boom and raking in millions in commission revenues from trade in the Safaricom shares, which have proved to be the dominant force at the Nairobi Stock Exchange (NSE) a month after listing.

The mobile phone company's counter has dominated trading at the bourse since June 9 when it was listed, at times accounting for up to 90 per cent of the stock market's total daily equity turnover.


Market turnover

Market statistics from NSE obtained by the Business Daily show that trading was at its highest in June when equity turnover reached Sh44 billion, more than half the total market turnover of

Sh70 billion recorded in the five months before Safaricom's listing.

As expected, a few brokers have entrenched their market dominance even in the new market order, with the top five by market turnover accounting for approximately 61 per cent of the total equity volume.

Kestrel Capital topped the list with a turnover of Sh16.6 billion in the six months to June, while Dyer & Blair reported Sh14.8 billion; Standard Investment Bank moved Sh13.6 billion, Apex Africa Sh13.3 billion and CFC Financial Services Sh10.2 billion.

Turnover for the top five brokers in June only almost equalled their total trades in the five months from January to May, with Kestrel Capital & Dyer and Blair trading Sh7.6 billion and Sh7.4 billion respectively.

Overall, the top 10 brokers accounted for 84 per cent of total trading activity at the bourse in the six months since January, out of about 25 licensed stockbrokers, investment banks and dealers.

Safaricom's dominance is not surprising for a stock that has broken almost all records at the bourse, even making it to the NSE 20-share index in a month. A newly-listed company would ordinarily take at least a year to be considered for inclusion into the share price movements' indicator.

Being the region's most profitable company and with a float of 10 billion shares (the stock market's largest) stockbrokers and independent observers anticipated that the share would dominate trading. But the current proportions were not anticipated.

One thing that the brokers agree on though is that Safaricom's listing has had a huge positive impact on their fortunes as commissions continue to flow in with every purchase and sale of the stock.

"It has been good for the market, the Safaricom counter has been dominant owing to the huge float of shares available for trading and the equally huge number of shareholders," says Mr Peterson Mwangi, the Afrika Investment Bank chief executive.

Foreign investors

Trading information in the last month shows that supply for the Safaricom share is mainly coming from foreign investors who took up two billion shares from a pool that was specifically reserved for international investors.

Safaricom house

Another source of supply for the shares has been retail investors who financed their purchases through commercial bank loans.

Though the price per share has declined from a high of Sh8 on the first day of trading to about Sh6.90 as at yesterday, interest in the stock is still reportedly high, with some of the local institutional investors who believe in the telecommunication company's fundamentals accumulating the stock.

The share was sold for an initial public offering price of Sh5.

"The share is affordable and therefore we are seeing interest from a wide cross section of investors both local and foreign," said Mr Mwangi.

Most retail investors who applied for the minimum application threshold of 2,000 shares were disappointed to receive allocations of only 420 shares (about 21 per cent of applications) and have preferred to sell them off.

"A lot of the retail investors feel that gains of up to 50 per cent in two months is reasonable and that is why they are selling off to take gains," says the head of research at Sterling Securities, Mr Justus Agoti, who maintains that the Safaricom share price could rise in the medium to long term.

"The share price could rise and stabilize at about Sh8 in the medium term," says Mr Agoti. The high equity turnover value handled by Stockbrokers also brings into focus the issue of capitalization of brokerage firms.

Going by the recorded total equity turnover of Sh114 billion so far, indications are that the brokers will exceed last year's volumes when they handled Sh177 billion.

And though the brokers' roles do not involve direct handling, there have been calls to strengthen their asset positions to reduce investors' exposure to activities of unethical brokers.

Former Finance minister Amos Former Finance Minister Amos Kimunya proposed an increase in the stockbrokers capitalisation from the current level of Sh5 million to Sh50 million within the next three years, and an increase in investment bank's paid up capital from the current Sh30 million to Sh250 million.

The NSE's image has in the last two years been tarnished by the activities of unethical stockbrokers who have sold investors' shares without their consent.


Source: Allafrica