Making sense of the Safaricom billions
The Sunday Nation
Nairobi,
25 May 2014
Every time Safaricom
announces its financial results, the same question is asked: isn’t this
company making too much money? This time round, the profit after tax was
Sh23 billion. Is that too much? The answer depends on how you look at
it. In my view, it is not!
Yes, I agree, viewed
in isolation, Sh23 billion is a lot of money. I don’t even want to start
guessing what I can do with that kind of money! But when looked at in
relation to the company that generated it, the different picture
emerges.
First of all,
Safaricom Limited is owned by about 700,000 shareholders. Two of them –
the Vodafone and the Government of Kenya - hold 75% of the company.
Therefore, Sh17bn out the Sh23bn belongs to these two.
The remaining
699,998 (so to speak) shareholders share out a quarter of the profits –
Sh6bn! Thus the average minority shareholder owns only Sh8,500 of the
profit. But that still doesn’t give the right picture.
The correct position
is that about 695,000 shareholders of Safaricom own less that 100,000
shares each. Cumulatively, they control only 4.4% of the company.
Therefore, out the Sh23bn profit, these “small investors” own only one
billion shillings. That is an average of Sh1,450 per shareholder! Now
the Sh23bn doesn’t so big after all.
But the story
doesn’t end there; the shareholders will not be paid all the profit
earned. They will only get Sh0.47 per share in dividend. Since the
company is divided into 40 billion shares, the total pay out comes to
Sh18.8bn.
Out of this,
Vodafone will get Sh7.52bn and the government of Kenya Sh6.52bn. The
remaining 699,998 (so to speak) shareholders will share Sh4.7bn. The
695,000 small investors who hold 4.4% of the company will share about
Sh827 million. That is, each will get an average of Sh1,200.
Now is this fair? Of
course it is: those who invest more should obviously earn more! Unlike
in law or politics, in business, everybody is not treated equally!
If you are one of
the small investors and you feel that Sh1,200 out of Sh23bn is too
little, then you should simply call your stockbroker and buy more
shares. They are freely traded at the stock market and the going price
is about Sh13 each.
But then we can ask:
where is the wisdom in buying something at Sh13 and then earning Sh0.47
from it per year? If the earnings remain the same, it will take you 28
years to get back your Sh13 through dividends! That doesn’t sound wise
at all, does it?
The reason again is
that we are not looking at the proper perspective. Safaricom dividend
pay-outs have been growing steadily from Sh0.2 in 2010 to the current
Sh0.47. That is an average annual growth rate of about 19%. Very few
companies in the world can show such performance!
If things remained
the same, and the growth is sustained, it will take you just ten years
to earn back your investment through dividends. Now that doesn’t sound
too long, does it?
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