Umeme share price remains volatile a week after floating

Analysts predict the price to remain volatile but could settle at Shs238.

The Umeme share price continues to be volatile, fluctuating between Shs300 and Shs270 as the power distributor makes a week on the Uganda Securities Exchange.

The highest price was registered on Monday and Tuesday when the share closed at Shs300 on both days before falling to Shs275 on Wednesday and closing yesterday at Shs275.

Umeme debuted on the secondary market on Friday, November 30 following the conclusion of a reportedly oversubscribed initial public offering (IPO).

Results published by the power distributor indicated that the IPO had been oversubscribed by 36.9 per cent with great interest coming from institutional and international investors.

In a telephone interview, Mr Robert Katabaire, a dealer at Dyer & Blair, told Daily Monitor that although the share looks comfortable at Shs275 - same as the IPO price, it has so far had a good performance evidenced by a Shs300 rise between Monday and Tuesday.

“From my observation, there was excessive supply compared to demand on Monday and Tuesday. On Wednesday, the share price dropped to Shs275 and demand swept all the available supply. There could still be speculators who are looking out for a high price to sell off their shares though,” Mr Katabaire said.

Additionally, Mr Kenneth Kitariko, the African Alliance chief executive officer, related the week’s share prices to the existence of incentive shares that are profitable even at Shs275.

“Our view is that investors are selling their incentive shares currently. Selling the incentive share at Shs275 is profitable. After investors selling offer the incentive shares, the market will then open up and will be more competitive. It is reasonable to project that the price will move up.”

Settling at Shs238
However early this week the Financial Times reported that Sterling Capital, a Nairobi - based investment bank, had put a target on the Umeme share price of 13 per cent less than the offer (IPO) price.

The investment bank also expects the power distributor’s share price to remain volatile but could eventually firm at about Shs238 before year end.

“We rate the stock underweight with a target price of Shs238.03 derived from relative valuation models. The target price presents a 13 per cent downside on the offer price of Shs275,” reads part of the analysis published by Financial Times.

“Given the nature of the company which depends on the 20 year concession from the government which expires in 2025, we consider that price to book valuation is fundamental to consider,” the report adds.

nkalungi@ug.nationmedia.com