•Thursday, November 29, 2007
Ever since the Government announced its intention to sell off a portion of Safaricom Ltd, there has been confusion about the company’s fair market value.
Vodafone PLC had offered $100 million about (Shs 6.7b) for an additional 10 per cent stake but the Government refused saying that the offer was too low. At that price, Vodafone had valued the company at Shs 67 billion (6.7 x 10 = 67). Then in this year’s budget, the Government announced that it expects to raise Shs 35 billion from the sale of 25 per cent of Safaricom through an IPO at the Nairobi Stock Exchange. That puts the value pf the firm at Sh140 billion (35 x 4 =140).
But recently, ODM, when criticising the sale of 51 per cent of Telkom Kenya to a strategic investor, stated that with 8 million subscribers, the fair value of Safaricom is about $8 billion or Sh520 billion.
Is the fair value of Safaricom Sh67 billion, Sh140 billion, or Sh520 billion? Investors value a company based on its potential to make good returns. This is assessed from profits and value of net assets. Safaricom made Sh12 billion in 2006/07 and had Sh33 billion in net assets at the close of the financial year. To get a fair value, we compare it to an equally profitable company and one in a similar line of business.
In the first category, East African Breweries Ltd (EABL) is appropriate. It made a profit of Sh6.1 billion 9after tax) in 2006/07 and its shares are valued at about Sh150 each at the stock market. EABL ahs 659 million shares, therefore, its market value at the NSE is about Sh99 billion. This means that investors are willing to pay about 16 times the profit for ownership of this company. If we apply the same ratio to Safaricom, we get a market value of Sh192 billion (Sh12b profit times 16).
The net assets of the two are Sh19 billion for EABL and Sh33 billion for Safaricom. That is, EABL’s value is about 5.2 times its assets. Therefore, using the same factor, the market value of Safaricom should be Sh 172 billion (5.2 x Sh33b).
Among those listed at the NSE, the company in the closest line of business is Access Kenya. It made Sh47 million in net profit in 2006 and had Sh130 million in net assets on 31st December 2006. Its current market value is about Sh3.6 billion. Applying the same factor to Safaricom yields a value of Sh924 billion- higher than the total value of all the companies at the NSE! Comparing the net assets of the two companies yields a Safaricom value of Sh 913 billion. The average value from the above calculations is Sh550 billion.
Nonetheless, the government expected Sh 5 billion from the sale of 51 per cent of Telkom Kenya but it got almost Sh 27 billion. If it can repeat that feat, then we can expect to get about Sh190 billion from the sale of 25 per cent of Safaricom. That translates to Sh760 billion.
(Article appeared on Sunday Nation 25th Nov 07. Article by Mungai Kihanya – www.mungaikihanya.com)
Vodafone PLC had offered $100 million about (Shs 6.7b) for an additional 10 per cent stake but the Government refused saying that the offer was too low. At that price, Vodafone had valued the company at Shs 67 billion (6.7 x 10 = 67). Then in this year’s budget, the Government announced that it expects to raise Shs 35 billion from the sale of 25 per cent of Safaricom through an IPO at the Nairobi Stock Exchange. That puts the value pf the firm at Sh140 billion (35 x 4 =140).
But recently, ODM, when criticising the sale of 51 per cent of Telkom Kenya to a strategic investor, stated that with 8 million subscribers, the fair value of Safaricom is about $8 billion or Sh520 billion.
Is the fair value of Safaricom Sh67 billion, Sh140 billion, or Sh520 billion? Investors value a company based on its potential to make good returns. This is assessed from profits and value of net assets. Safaricom made Sh12 billion in 2006/07 and had Sh33 billion in net assets at the close of the financial year. To get a fair value, we compare it to an equally profitable company and one in a similar line of business.
In the first category, East African Breweries Ltd (EABL) is appropriate. It made a profit of Sh6.1 billion 9after tax) in 2006/07 and its shares are valued at about Sh150 each at the stock market. EABL ahs 659 million shares, therefore, its market value at the NSE is about Sh99 billion. This means that investors are willing to pay about 16 times the profit for ownership of this company. If we apply the same ratio to Safaricom, we get a market value of Sh192 billion (Sh12b profit times 16).
The net assets of the two are Sh19 billion for EABL and Sh33 billion for Safaricom. That is, EABL’s value is about 5.2 times its assets. Therefore, using the same factor, the market value of Safaricom should be Sh 172 billion (5.2 x Sh33b).
Among those listed at the NSE, the company in the closest line of business is Access Kenya. It made Sh47 million in net profit in 2006 and had Sh130 million in net assets on 31st December 2006. Its current market value is about Sh3.6 billion. Applying the same factor to Safaricom yields a value of Sh924 billion- higher than the total value of all the companies at the NSE! Comparing the net assets of the two companies yields a Safaricom value of Sh 913 billion. The average value from the above calculations is Sh550 billion.
Nonetheless, the government expected Sh 5 billion from the sale of 51 per cent of Telkom Kenya but it got almost Sh 27 billion. If it can repeat that feat, then we can expect to get about Sh190 billion from the sale of 25 per cent of Safaricom. That translates to Sh760 billion.
(Article appeared on Sunday Nation 25th Nov 07. Article by Mungai Kihanya – www.mungaikihanya.com)
|
0 comments: