Analysts react to Umeme share price as company goes public

A securities analyst has said Umeme’s Initial Public Offering price may be expensive for retail investors. Umeme, Uganda’s largest power distributor, announced on Friday it would price its IPO at Shs275 per share.

Mr Edgar Mutebi, a securities broker at UAP Financial Services, told Daily Monitor on Friday that pricing the IPO at above Shs100 might not be good for individual investors wishing to have a piece of the power vendor’s shares.

Umeme’s IPO is Shs230 higher than that of National Insurance Corporation - Shs45, the last firm to have listed on the exchange.

“If Umeme wanted to have a favourable price for retail investors, it would have lowered its IPO price to at least Shs27 per share and increase the number of shares listed by 10 times,” Mr Mutebi said.

“With a minimum of 1,000 shares, he added ‘one would need Shs275,000 to invest in the power firm. This is a bit on the higher end for individual investors.

He said if the price was a bit lower, it would provide room for a price appreciation after listing: the lower the price, the more advantageous the price appreciation.”

Gave green light
The Capital Markets Authority last week approved Umeme’s IPO, giving the power vendor an opportunity to float its shares on the Uganda Securities Exchange.

The IPO which will be launched today is expected to close by November 7.
Umeme, which will be the first utility company to sell shares to the public in Uganda, will put up 622,378,000 shares for local, regional and international institutional and retail investors.

Actis, a UK based equity fund, which owns 100 per cent of Umeme, is seeking to sell 38.6 per cent of its stake in Umeme.

Standing at $178 million, Umeme’s offer value becomes the second largest listed company at USE after Stanbic Uganda, valued at $398 million by close of last week.

Umeme plans to use the funds from the IPO to finance capital investment programmes including development of the electricity distribution network, establishment of a prepayment metering system and the reduction of energy losses.

East African retail investors have been offered 20 per cent of the shares, 25 per cent for qualified institutional investors in EAC, 46 per cent for international investors, while directors have been offered 9 per cent.
Umeme’s managing director Charles Chapman recently said the IPO would strengthen the firm, making it more transparent and accountable to stakeholders.

Stanbic Bank will be the IPO’s transaction advisor, whereas African Alliance will be the sponsoring broker.

Mr Kenneth Kitariko, the African Alliance chief executive officer, however, said retail investors will be able to visualise the price vis-a-vis the opportunities in the company once they analyse the prospectus.

The prospectus expected to be out today (Monday), describes a firm’s financial security thus guiding investor decisions.

Mr Kitariko said the IPO will ignite interest and activity at the bourse which had been yearning for another listing since the one of NIC about two years ago.

He said it would not be fair to compare the Umeme IPO with any other since Umeme is the first utility company and the first private company to list on the bourse.

With other companies it has been the government selling its stake to the public.

However, investors are likely to look out for factors such as Umeme’s future profitability and business sustainability as some of the key pointers to guide their investment decisions.

According to Umeme’s 2011 financials, the firm posted a 38 per cent increase in its profits, registering Shs102 billion compared to Shs77 billion posted in 2010.

Umeme, which signed a 20 year concession in 2005 for the distribution of Uganda’s power, has 13 years left for the agreement it signed with the government of Uganda to expire.

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