Umeme’s share price jumps 9 percent on increase in dividend payout

Umeme’s share price rose on the back of an increase in final year dividend by 22.4 percent to Shs78.2 per share. 

The counter, which remains one of the most active despite the expected expiry of the power distributor’s 20-year concession in March next year, rose to a high of Shs439.75, which was last observed in June last year.

Umeme, which traded on the Uganda Securities Exchange and is cross-listed on the Nairobi Securities Exchange posted a 9.94 percent increase in value coming on the back a declared final dividend of Shs54.2 for the year ended December 2023, in addition to the Shs24 interim dividend paid last month.

Early this week the company’s share price peaked at Shs439.75, the highest level since June last year, when it reached Shs440.

“It is plausible that investors are eying the premium that will culminate from the buyout government will pay for Umeme’s assets when its concession ends in March next month plus the dividends that come along with it since the company will scale back on investment as its concession meets a natural,” Mr Andrew Mwiima, a financial markets analyst, said yesterday. 

Government concessioned the electricity distribution assets to Umeme in 2005, which will revert to government next year. 

The company has been investing in the distribution network, while making recoveries through power tariffs. However, any money not recovered by the end of the concession will be part of the final buyout amount.

Umeme indicates that by the end of 2023, it had invested about $339m (Shs1.31 trillion), but the figure is expected to come down through tariff capital recoveries at a rate of 18 percent , which was increased last year from 10.2 percent. 

The company is expected to receive the final buyout amount within 30 days after the expiry of the concession, failure of which government will be subjected to 20 percent interest on an annual basis until full pay.

The expected payout is a boost to shareholder value, in addition to a positive performance coming at the tail end of the concession.  During the period ended December 2023, Umeme’s cash flow position increased by 47 percent to $119m (Shs459.4 b), supported by an increase in electricity sales to $588m (Shs2.27 trillion). 

However, profits declined to Shs11.7b from Shs148.2b due to debt repayment of Shs602.2b paid over of two years. 

However, Mr Andrew Oyie, the Umeme chief financial officer, said the debt repayment is comparable to a capital recovery and is consistent with the company’s increase in earnings before interest, taxes, depreciation and armotisation, thus allowed the company to declare a dividend payout of $28m (Shs108.1b) due in July 

“It’s allowed in the tariff structure. So, we are driving efficiency ... to increase what we shall recoup at the final buyout,” he said.

Umeme intends to spend about $2m (Shs7.7 b) on capital expenditures before expiry of the concession since a number of lines require ‘serious’ maintenance.

Mr Selestino Babungi, the Umeme chief executive officer, said the expenditure will be part of the final buyout if it is not recovered by the time of the concession expiry. 

Shareholders are expected to receive a final payout of at least Shs720 per share due to expiry of the concession and market valuation of Umeme. 

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