Shareholders concerned over Umeme’s falling share price

Monday May 20 2019

Falling. Umeme’s stock price has been falling

Falling. Umeme’s stock price has been falling since May 2018, according to data from Uganda Securities Exchange. FILE PHOTO  

By Martin Luther Oketch

Kampala. The dropping share price at the Umeme counter on the Uganda Securities Exchange has drawn concerns from a cross section of shareholders.
The stock, which closed Friday at Shs298 has been inching closer the initial public offering price of Shs275 from a high of as much as Shs410.
While presenting results of Umeme’s 2018 performance during the annual general meeting in Kampala recently, some shareholders queried why the share price had been dipping, nearly dropping to the price it traded when it first went public in 2012.

However, during the meeting, Mr Richard Byarugaba, the managing director of National Social Security Fund (NSSF), the biggest institutional shareholder in Umeme, said the drop was mainly attributed to external factors, which were beyond the company’s control.
“If you look at the numbers, yes, the share price has gone down. But this was largely due to external factors,” he said, noting that the turbulence could have been a result of a number of factors, key among them President Museveni’s letter, which had threatened not to renew Umeme’s concession.

Effect of Museveni’s letter
In March 2018, President Museveni wrote a letter wondering why tariff prices had persistently remained high tariffs despite investments in the electricity network.
The President also wondered why energy losses, which are compensated under the terms of the concession, continued to be high with minimal reductions since 2005.
The Umeme share, according to data from the Capital Markets Authority research department, in January 2018 opened the year at Shs400, rising up to Shs410 until May.

However, according to Mr Dickson Sembuya, a researcher at CMA, the share subsequently dropped on May 2 to Shs399 and has since continued to move southwards.
Mr William Nyakatura, a financial analyst at Kinsman Advisory, said the share price could have suffered because of jitters brought about by President Museveni’s letter.
The skepticism caused by the letter and the low participation at the exchange by foreign investors, he said, could have obstructed competitiveness in the share prices on a number of companies at the USE.

Calming the concerns, Mr Nyakatura said, will not be easy until when the company’s concession is assured.
“The worry for any shareholder is willing to sell, but no one wants to buy. That is not a good environment for investment,” he said.
Mr Patrick Bitature, the Umeme chairman reassured investors of continuity, saying the share price will bounce back, especially now that the President has directed that negotiations for the renewal of the concession begin.
In February, Finance Minister Matia Kasaija instructed stakeholders in the energy sector to setup a technical committee to start negotiations that will see the concessions, which will expire in 2025, extended.

Mr Richard Byarugaba, National Social Security
Mr Richard Byarugaba, National Social Security Fund managing director


Renegotiating concession
Umeme, according to Mr Bitature, has also indicated its willingness to renegotiate the terms of concession, especially in regard to the rate of return on investment, which currently stands at 20 per cent.
Return on investment is the money Umeme recoups from every investment they make in the electricity sector.
Mr Selestino Babungi, the Umeme managing director also told shareholders that they were in the process of raising funds with or without the concession renewal.

Umeme stock trading contributes 54 per cent of growth at USE in April

Despite the sustained fall in share prices since May 2018, Umeme contributed up to 54 per cent in trading volumes at the Uganda Securities Exchange (USE) in April in 2019.
Data from USE indicates that during April Umeme shares trading generated Shs19.4b out of the total turnover of Shs28.4b at the USE.
Three companies including Umeme, Baroda and Stanbic accounted for more than 96 per cent of total turnover. Umeme’s total market capitalisation stood at Shs15.17b.
During the month Umeme was the most active counter, followed Stanbic Holding and Bank of Baroda.
Last week, Mr Paul Bwisho, the USE chief executive officer, said trading in Umeme’s shares, has since the release of the company’s financial results in April gained momentum.

Growing financial markets
Mr Patrick Bitature, the Umeme chairman, said it is important that Uganda grows its financial markets in order to transform the country’s economy and society.
This, he said, must be done through easing and sensitising people about financial and stock markets.
“It [rule of the game] has to change for us to be able to support government aggressive and ambitious access agenda. We are trying to invest ahead of the curve to be able to deliver effectively. We have to be efficient, using technology and customer centric,” he said.
Mr Bitature also indicated that they were trying to change several things so that the country can gain from financial markets, such as, the stock exchange much faster than in the previous 14 years.
Mr Andrew Oyie, the Umeme acting chief finance officer, said although the share price was falling, it is not a true reflection of their balance sheet, which returned a profit of more than Shs135b in the year ended 2018.