East Africa Breweries Limited (EABL), Safaricom, and BAT Kenya compose 92 percent of the rise in investor wealth at the Nairobi Securities Exchange (NSE) from the beginning of the year, exhibiting the twist of the bourse’s performance by the blue-chip stocks.
These three particular stocks reported an amalgamated gain of Sh183.86 billion since January 1, constituting 92.3 percent of the 199.12 billion appreciation of all shares at the NSE.
The firms’ enormous influence on key market indicators has made it hard for investors to quantify the true performance of the bourse.
From an outward point of view, the NSE may seem to have recovered from the effects of the Covid-19 pandemic as the investors hope the coronavirus vaccine will retain the global economic recovery on schedule.
However, when the market is studied closely, it is exposed that a few stocks influenced the rally, with EABL, BAT and Safaricom reported a double-digit growth since January 2021.
According to analysts, investors have concentrated on companies that appear ready to withstand the economic shocks and pay dividends regardless.
“The rally is still very restricted and is not the entire bourse. The market is picking up success stories and running with it,” said Eric Musau, the head of research at Standard Investment Bank.
The BAT Kenya is the largest gainer in 2021 at NSE, reporting a return of 21 percent.
EABL’s share increased by 13.2 percent to Sh174.50 and Safaricom rose by 11.7 percent to Sh38.25 in the period under review
Safaricom reported the highest absolute gain in market capitalization at Sh160.26 billion, accounting for an 80 percent of the rise in investor wealth at the NSE in 2021.
Its’ share improvement is linked to the Sh0.45 dividend payout announcement and the decision by the Central Bank of Kenya to terminate the free M-Pesa transactions of up to Sh1,000.
The waiver of charges on M-Pesa transactions up to Sh 1000 cost Safaricom Sh9 billion in the six months to June.
According to analysts, EABL expects sales to bounce back from a coronavirus-induced plunge in the second half to June as countries in the region ease up measures to control the spread of the virus. This makes the EABL share a safe bet to invest in.
The brewer reported a three percent decrease in net sales for its first half ended December as sales were trounced by the closure of bars. Post-tax profit sank by a third.
BAT has sustained generous dividend policies for decades to the point of paying nearly all its net earnings to shareholders. It paid an interim dividend of Sh3.50 from its half-year to June 2020, when its net profit leaped by 5.9 percent to Sh2.6 billion.
The Capital Markets Authority (CMA) has pointed out the dominance of five companies — including Safaricom a big risk, with the performance of their shares domineers whether the market’s upwards or downward performance on any day.
The top five NSE listed firms have expanded their share of the market’s total investor wealth to more than 80 percent, up from 65 percent three years ago.
Safaricom is worth Sh1.53 trillion accounting for 60.4 percent of the NSE’s market capitalization.
According to analysts, the liquid stocks by the firms offer the investors an opportunity to easily enter or exit the market.
The delisting of firms like KenolKobil and the value deterioration of blue-chip stocks like Kenya Power and Kenya Airways have seen the five firms cement the monopoly.
However, Safaricom, Equity, and Co-operative Bank got into the market during the 2005 to 2009 IPO famous years.
The CMA states that it requires new listings of high-value firms to amend the market imbalance.
“To diversify the number and quality of listed entities the CMA is working with market players – Privatisation Commission, Kenya Private Sector Alliance, and Kenya Association of Manufacturers amongst others in identifying potential issuers within the Kenyan market – both large-cap and SMEs as a way of increasing diversity within the Kenyan market,” CMA stated.