Why investors are buying Umeme shares in droves

In an attempt to kill two birds (the dividend and the buyout) with one stone, investors have over the past fortnight methodically purchased shares worth billions on the stock market in Uganda’s distributor of electricity—Umeme.

On March 11, trading data from numerous stock brokers revealed that the counter had traded 9.34 million shares valued at $1.004m or Shs3.74b, shocking everyone on the stock market for the counter that wasn’t trading much shares lately.

This was purchased at market price, so it was insufficient to cause a change in the stock price of the company, which stayed unchanged at Shs400.

By contrast, MTN Uganda was the second most traded counter that day. Its shareholders were transacting in order to benefit from dividends that the company had recently been announced.

The directors of MTN Uganda proposed on March 6 to pay the final interim dividend of Shs6.4 per share for the fiscal year 2023, subject to withholding tax deductions.

They also issued a warning to investors that a dividend will be paid to those who will be in their books by May 29. This sparked a rush. Its share price did, in fact, briefly rise as a result, from Shs170 to Shs171.96 before dropping back to Shs170.

MTN Uganda is increasing its dividend payment to shareholders for the 2023 fiscal year from Shs15.90 per share to Shs18 per share, or a 13.2 percent increase.

Nervy wait

The shareholders of Umeme are also waiting anxiously for the company to announce its 2023 annual results on Monday. A lot of financial analysts predict the company will declare a total dividend of Shs100 per share, which would rank among the highest on the stock market.

In February, the company paid an interim dividend of Shs24 per share to its shareholders following strong financial results from its operations. This was before issuing a profit warning for the 2023 full year results.

Umeme informed its shareholders that a one-time impairment charge on its assets prior to the expiration of its electricity distribution contract in March 2025 would result in a 25 percent decrease in profit for the quarter ending December 2023.

This is because, in April 2021, the Uganda Securities Exchange (USE) implemented stricter trading regulations that require listed companies to promptly disclose any significant changes to their financial results and operations.

This was a change from earlier rules that lacked a fine schedule to penalise dishonest disclosure practices and seemed ambiguous about some disclosure requirements.

Although it is conceivable that nothing odd has triggered the ongoing frenzy on the counter, sources at USE feel that something has prodded the institutional investors who are purchasing shares of this magnitude at the moment.

“These investors are definitely waiting for a possible dividend pay-out because the company generated cash but they are definitely not looking to reinvest it in its operations since its contract ends in March 2025. So there is cash at hand ready for distribution among shareholders, and the right moment to buy shares is now,” a source at USE said, refusing to be quoted.

Reticent Umeme

Officials at Umeme are reluctant to discuss the issue just now since it may result in sinusoidal fluctuations in the company’s stock price on both the Uganda and Nairobi Securities Exchanges, a few days before it reports its financial results.

The company has an Anti-Insider Trading Policy in place to make sure that any transactions in the company’s stock by directors, significant shareholders, contractors, senior management, and staff members who have access to confidential information, as well as those connected to them, are carried out in an ethical manner and do not harm the interests of other present or potential investors.

There are signs, however, that excitement among investors is boiling up. Out of the 44.225 million shares that were traded between March 4 and March 22, Umeme’s shares contribute 19.694 million shares, or 44.53 percent of the total volume, data from USE shows.

During the period, there were 436 deals of shares exchanging hands that were valued at Shs9.3 billion among the eight companies whose counters were active. Of those, Umeme’s investors exchanged shares valued at Shs7.88 billion in 100 deals.

On the other hand, since the beginning of the year, all listed companies’ total turnover, or the value of shares traded on the local exchange, has been Shs11.9 billion for 85.3 million shares.

To be specific, since January 2, when trading started in 2024, Bank of Baroda has traded 38.8 trillion shares, or 45.5 percent of all shares exchanged on the local bourse to date, but with a turnover of Shs582 million, or 4.9 percent.

In contrast, Umeme’s trading counter has exchanged 22 million shares worth Shs9.14 billion over that course of three months.

“This is because Bank of Baroda Uganda (BOBU) has a stock that is one of the cheapest (Shs15 per share) on the local bourse and with a good dividend yield of about 13 percent,” said David Bateme, head of research at Crested Capital, a stock broker.

Although the dividend yield on BOBU’s stock is slightly lower than that of NIC Holdings and Stanbic Bank Uganda (with 16.4 percent and 18.3 percent, respectively), many investors still favour Bank of Baroda’s stock because Stanbic, which had the highest annual return in capital gains of the three companies of 57.1 percent, has a share price whose value (Shs33) doubles that of BOBU as of March 21.

Lure of Umeme

Out of the top four companies with the highest dividend yield on the local exchange, Umeme has the highest share price (Shs400). Its dividend yield of 12 percent puts it in fourth place.

The company’s stock has attracted a lot of interest from offshore investors from east Africa and throughout the continent due to its ‘good’ annual dividends, which average Shs50 per share.

This year, Umeme’s share price has increased 33.3 percent to Shs400 from last year, but many stock market analysts predict that it will ultimately settle at Shs590.

“The investors who have been buying Umeme’s shares since last year—I don’t think they eyed a buyout or anything more fascinating because there was still time [till March 2025, when Umeme’s concession meets a natural end]. I think they were looking for perks in the dividends the company has been issuing and they mostly influenced the share price in times of dividend announcements and reactions to the company’s financial performance,” one institutional investor noted.

A few pundits have speculated that the company may be discussing a plan with the government to extend its concession or something similar, which would explain the recent volatility in Umeme share prices. 

However, sources close to the company point out that this is unlikely because Umeme will reinvest the majority of its cash to plan its business strategy if it does end up staying in the Ugandan market, which would leave many shareholders with lower dividends, something investors don’t want at the moment.

“It is also possible that there is no trigger on Umeme’s concession because these trades happen. Recently, DFCU’s counter on the stock market traded 200,000 shares at a time when there was less trading on its stock. Sometimes these things happen when a buyer agrees with the seller to buy shares of this magnitude without ulterior motive,” one stock broker noted.

Why investors are buying Umeme shares in droves

Decrease. Umeme said a one-time impairment charge on its assets prior to the expiration of its contract would result in a 25 percent decrease in profit.

The shareholders of Umeme are waiting for the company to announce its 2023 annual results tomorrow. A lot of financial analysts predict the company will declare a total dividend of Shs100 per share, which would rank among the highest on the stock market, writes Deogratius Wamala.

In an attempt to kill two birds (the dividend and the buyout) with one stone, investors have over the past fortnight methodically purchased billions of shares on the stock market in Uganda’s distributor of electricity—Umeme.

On March 11, trading data from numerous stock brokers revealed that the counter had traded 9.34 million shares valued at $1.004m or Shs3.74b, shocking everyone on the stock market for the counter that wasn’t trading much shares lately.

This was purchased at market price, so it was insufficient to cause a change in the stock price of the company, which stayed unchanged at Shs400.

By contrast, MTN Uganda was the second most traded counter that day. Its shareholders were transacting in order to benefit from dividends that the company had recently been announced.

The directors of MTN Uganda proposed on March 6 to pay the final interim dividend of Shs6.4 per share for the fiscal year 2023, subject to withholding tax deductions.

They also issued a warning to investors that a dividend will be paid to those who will be in their books by May 29. This sparked a rush. Its share price did, in fact, briefly rise as a result, from Shs170 to Shs171.96 before dropping back to Shs170.

MTN Uganda is increasing its dividend payment to shareholders for the 2023 fiscal year from Shs15.90 per share to Shs18 per share, or a 13.2 percent increase.

Nervy wait

The shareholders of Umeme are also waiting anxiously for the company to announce its 2023 annual results on Monday. A lot of financial analysts predict the company will declare a total dividend of Shs100 per share, which would rank among the highest on the stock market.

In February, the company paid an interim dividend of Shs24 per share to its shareholders following strong financial results from its operations. This was before issuing a profit warning for the 2023 full year results.

Umeme informed its shareholders that a one-time impairment charge on its assets prior to the expiration of its electricity distribution contract in March 2025 would result in a 25 percent decrease in profit for the quarter ending December 2023.

This is because, in April 2021, the Uganda Securities Exchange (USE) implemented stricter trading regulations that require listed companies to promptly disclose any significant changes to their financial results and operations.

This was a change from earlier rules that lacked a fine schedule to penalise dishonest disclosure practices and seemed ambiguous about some disclosure requirements.

Although it is conceivable that nothing odd has triggered the ongoing frenzy on the counter, sources at USE feel that something has prodded the institutional investors who are purchasing shares of this magnitude at the moment.

“These investors are definitely waiting for a possible dividend pay-out because the company generated cash but they are definitely not looking to reinvest it in its operations since its contract ends in March 2025. So there is cash at hand ready for distribution among shareholders, and the right moment to buy shares is now,” a source at USE said, refusing to be quoted.

Reticent Umeme

Officials at Umeme are reluctant to discuss the issue just now since it may result in sinusoidal fluctuations in the company’s stock price on both the Uganda and Nairobi Securities Exchanges, a few days before it reports its financial results.

The company has an Anti-Insider Trading Policy in place to make sure that any transactions in the company’s stock by directors, significant shareholders, contractors, senior management, and staff members who have access to confidential information, as well as those connected to them, are carried out in an ethical manner and do not harm the interests of other present or potential investors.

There are signs, however, that excitement among investors is boiling up. Out of the 44.225 million shares that were traded between March 4 and March 22, Umeme’s shares contribute 19.694 million shares, or 44.53 percent of the total volume, data from USE shows.

During the period, there were 436 deals of shares exchanging hands that were valued at Shs9.3 billion among the eight companies whose counters were active. Of those, Umeme’s investors exchanged shares valued at Shs7.88 billion in 100 deals.

On the other hand, since the beginning of the year, all listed companies’ total turnover, or the value of shares traded on the local exchange, has been Shs11.9 billion for 85.3 million shares.

To be specific, since January 2, when trading started in 2024, Bank of Baroda has traded 38.8 trillion shares, or 45.5 percent of all shares exchanged on the local bourse to date, but with a turnover of Shs582 million, or 4.9 percent.

In contrast, Umeme’s trading counter has exchanged 22 million shares worth Shs9.14 billion over that course of three months.

“This is because Bank of Baroda Uganda (BOBU) has a stock that is one of the cheapest (Shs15 per share) on the local bourse and with a good dividend yield of about 13 percent,” said David Bateme, head of research at Crested Capital, a stock broker.

Although the dividend yield on BOBU’s stock is slightly lower than that of NIC Holdings and Stanbic Bank Uganda (with 16.4 percent and 18.3 percent, respectively), many investors still favour Bank of Baroda’s stock because Stanbic, which had the highest annual return in capital gains of the three companies of 57.1 percent, has a share price whose value (Shs33) doubles that of BOBU as of March 21.

Lure of Umeme

Out of the top four companies with the highest dividend yield on the local exchange, Umeme has the highest share price (Shs400). Its dividend yield of 12 percent puts it in fourth place.

The company’s stock has attracted a lot of interest from offshore investors from east Africa and throughout the continent due to its ‘good’ annual dividends, which average Shs50 per share.

This year, Umeme’s share price has increased 33.3 percent to Shs400 from last year, but many stock market analysts predict that it will ultimately settle at Shs590.

“The investors who have been buying Umeme’s shares since last year—I don’t think they eyed a buyout or anything more fascinating because there was still time [till March 2025, when Umeme’s concession meets a natural end]. I think they were looking for perks in the dividends the company has been issuing and they mostly influenced the share price in times of dividend announcements and reactions to the company’s financial performance,” one institutional investor noted.

A few pundits have speculated that the company may be discussing a plan with the government to extend its concession or something similar, which would explain the recent volatility in Umeme share prices. 

However, sources close to the company point out that this is unlikely because Umeme will reinvest the majority of its cash to plan its business strategy if it does end up staying in the Ugandan market, which would leave many shareholders with lower dividends, something investors don’t want at the moment.

“It is also possible that there is no trigger on Umeme’s concession because these trades happen. Recently, DFCU’s counter on the stock market traded 200,000 shares at a time when there was less trading on its stock. Sometimes these things happen when a buyer agrees with the seller to buy shares of this magnitude without ulterior motive,” one stock broker noted.