Umeme's 20-year concession will naturally terminate today. However, going by what has been happening in the last few weeks, it is going to be some interesting days ahead. Photo / File
Umeme’s shareholders are currently watching a drama unfold. Many of them have started offloading their shares, thanks to a near sure dispute that could result over the final buyout figure.
Government and Umeme are way off the same page. Umeme claims the buyout stands at $234m (Shs852b), while government last week put it at just $118b (Shs430b).
There is also a $9.7m payout for work in progress that might be known today.
It’s a tough spot for shareholders to be in. By Friday, data from the Uganda Securities Exchange showed the level of uneasiness among minority shareholders, who could be panicky and disposing of shares.
Data shows that at least 313,100 shares were available last Thursday and Friday at a price of Shs415 each.
Investors could have expected a windfall, but the direction of the current events could be telling them otherwise.
People familiar with the goings on suggest that some of the investments Umeme is claiming were unconsidered because the regulator found they were not adding value to consumers, while others were made without approval.
It has also been reported that Umeme owes Uganda Electricity Transmission Limited (UETCL) Shs542.8b as of March 13, but Umeme, however, insists the actual figure is Shs269.3b, as of March 21, excluding February’s invoice.
This will be a contentious issue and for shareholders, who have for months been waiting for a windfall, it’s a nail-biting movie in the making.
Umeme is publicly traded on both USE and the Nairobi Securities Exchange, with Ugandan investors holding 39.2 percent and foreign investors owning 60.8 percent of the company that, by Friday, had a market valuation of Shs674b.
National Social Security Fund is the largest shareholder, holding a 23.4 percent stake.
The shareholder pool is a tale of two worlds - 5,068 small investors have a collective 0.68 percent stake, while just 1,475 have a staggering 99.33 percent.
Most large term investors, such as NSSF and Allan Gray will wait until the last end.
However, seeing that government has cut the expected buyout figure in half has raised eyebrows, and some investors will be seeking to understand why.
Over the past two trading days –Thursday and Friday – at least 313,100 shares were made available at a price of Shs415, but there were only 5,000 bids.
David Bateme, a financial markets analyst and new business team lead at Crested Capital, says the shares being traded are minimal and mainly from minority shareholders, who could be concerned about the uncertainty surrounding Umeme’s standoff with government.
Some shareholders, he says, might just be cashing in on gains, given that there could be some who bought the stock at Shs410 in October 2024 or Shs200 in 2022.
Umeme has 1.6 billion shares in circulation, but only 209, 492 shares valued at Shs87m have exchanged hands, which is barely enough to move the stock price from Friday’s Shs415.
The Umeme stock has remained relatively stable since January 13, when it dipped a few cents to Shs414.
“For strategic investors, it’s just business as usual. Umeme has been consistently paying high dividends year after year, and there is been no official word on its delisting – that is a decision set to be made at the company’s annual general meeting on May 22. Institutional investors are still confident because they have been enjoying those dividends for years, and if they bought in at a price lower than Shs415, there is no reason to panic,” Bateme says.
Umeme debuted on the USE in November 2012 at an offer price of Shs275.
A buyout of $118m works out to about $0.073 (Shs265.757) per share, which would mark a 3.4 percent capital gains loss to initial public offer investors, who bought each share at Shs275.
Crested Capital’s projections estimate the full-year 2024 dividend to be in the range of Shs90 - 95 ($0.03).
“After deducting the Shs26 ($0.01) interim dividend paid to shareholders in the first half of 2024, we project the final dividend to be around Shs70 ($0.02). For the first quarter of 2025, a smaller final dividend will be adjusted for the concession termination and transition-related costs tied to the handover,” the brokerage firm notes in an investors’ update.
Umeme’s dividend policy has been pretty generous, with substantial payouts ahead of the concession termination. Dividends have averaged over 20 percent per annum since 2021.
If the Auditor General’s figure holds - a payout of $118m (Shs430) - and combined with Umeme’s retained earnings of Shs609b, financial markets and company valuing experts Gitta Expedito and Malinga Joseph Kirk suggest in a Substack post that Umeme’s 2024 profit could reach a neat Shs160b.
In 2022, Umeme earned Shs148b in profit, but after settling its long-term debt in 2023, profits substantially contracted to just Shs11.47b.
However, with no more long-term debt, 2024 profits look to be promising again. After clearing short-term debt - most of which could be transferred to UEDCL - Umeme’s shareholders could walk away with up to Shs800b.
And it is here that the plot thickens, given that despite the ongoing dispute, Umeme isn’t likely to leave all its retained earnings for government to claim.
“The company’s de-listing is a one-off event, which raises the question: Are those retained earnings even up for grabs? The real money here is in those retained earnings, which is why investors are eager to cash out. If the company is winding down, there is no point in keeping them around; expect those funds to flow directly to shareholders,” Expedito and Kirk argue.
Retained earnings are typically reinvested into the business for growth, but it’s hard to ignore the fact that a chunk of that cash could end up being claimed by government.
It gets even spicier when you consider that most shareholders hold ordinary shares, but the directors - who own substantial stakes - are unlikely to make decisions that hurt their own pockets.
Take Selestino Babungi, the Umeme managing director, who owns in the excess of four million shares.
With a seasoned accountant at the helm, Babungi is betting on management’s track record to make the best calls for shareholders.
Opportunities for exiting Umeme investors
Market analysts are advising investors looking to exit Umeme to consider other opportunities in the local capital markets.
Dividend seekers are encouraged to look at some of the “Black Diamonds” on the Uganda Securities Exchange - stocks that returned more than 25 percent in 2024, including Stanbic Holdings, MTN, Quality Chemicals, and Bank of Baroda.
For those eyeing the fixed income space, reinvestment opportunities in government treasury bills and bonds are on the table, offering returns above 15 percent per annum with low risk and stable returns.
