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Eyes on Umeme, MTN as investors jump in, hoping to strike gold

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Umeme’s exit this March could result in a threefold payout on its current Shs415 share price to current shareholders. Investors continue to watch the power distributor’s counter keenly. Photo / File 

Three stocks are making waves, but not for their current performance - it's all about the future pay-outs.

Umeme’s concession ends in March, and investors are eagerly awaiting the buyout. Kenya Airways (KQ) is in the spotlight too, with hopes of a bailout or private rescue deal.

Meanwhile, MTN’s spin-off of its mobile money business has investors talking about a potential special dividend.

The outcome? A flurry of trades, stock price swings, and shareholders gambling on a future payday.

Umeme

For 12 years, Umeme was the stock market's heart, dominating turnover - except in 2018, when President Museveni’s comments on its returns against government spooked investors.

What made Umeme stand out on the local exchange was its full float; unlike most companies that list a small share, Umeme listed 100 percent, drawing both retail and institutional investors.

Now, Umeme's exit this March brings a $300m question. Government’s buyout, valued at $300m (pending legal approval from the Attorney General expected this week), could result in a threefold payout on its current Shs415 share price to current shareholders, many brokerage firms point out.

With nationals holding half, local investors could pocket $150m. This payout potential has sparked a buying frenzy, pushing share prices up and leaving other stocks scrambling to fill the liquidity gap.

MTN’s mobile money spin-off: A jackpot or a jigsaw?

MTN's mobile money spin-off has investors both excited and mystified.

Currently, dividends come from a mix of Fintech profits, data, and voice revenues. But with mobile money going private, the big question is: who gets the cash and how?

The concern is that the new structure could reroute Fintech revenues, leaving current shareholders in the dust. MTN isn’t saying much - only promising an update “when it happens.”

For now, MTN's generous dividends keep investors hooked. “Shareholders love the payouts,” says Delick Manishimwe, a research analyst at Crested Capital.

But with mobile money’s spin-off looming, the market is on the edge: Will this pay off, or leave investors in a spin?

Meanwhile, MTN's stock is on fire, with its price surpassing the initial public offering price of Shs200 to Shs285 by Sunday.

Kenya Airways (KQ)

Kenya Airways shares resumed trading last Monday (January 6), after a suspension that began in July 2020.

Initially, the suspension was to finalise the Kenya government buyout eligibility, but it later turned into an indefinite freeze as KQ went through a complex restructuring process. Despite multiple extensions from the Nairobi Securities Exchange, chief executive officer Allan Kilavuka’s request for another 12-month delay was rejected in December 2024.

The Kenya Capital Markets Authority argued there was insufficient evidence of financial collapse and pointed out that the legislative framework for the suspension had been withdrawn.

Kilavuka defended the delay, citing the airline's dire financial state and grounded planes due to a shortage of spare engines.

KQ’s recovery strategy, including selling a stake to a strategic investor, remains unfinished.

Trading resumed with 173,700 shares changing hands at Kshs4.05 (Shs115.46), reflecting a 5.74 percent gain from the last trading price in 2020.

Speculation around a government buyout is back, fuelled by KQ's surprise Kshs513m (Shs14.6b) profit for the first half of 2024.

While the future is uncertain, KQ shares have become an attractive, though risky, option for investors.

What do we know so far?

MTN is preparing to split its mobile money business from its telecom assets, a move aligned with MTN Group’s “Ambition 2025” to boost growth across Africa.

The plan was first highlighted in the telecom’s prospectus.

The goal is to consolidate infrastructure and attract third-party capital, but the local plan involves careful compliance with market standards to protect minority shareholders.

The separation mirrors Airtel’s move, which split its telecom and mobile money businesses under the National Payment Systems Act, 2020.

However, MTN’s model, which integrates both, has significantly boosted its profitability.

Mobile money now contributes 29.3 percent to MTN’s Shs2.267 trillion revenue as of 2024, making its performance pivotal.

Investors are cautiously eyeing the potential effects on MTN’s market capitalisation, which leads the Uganda Securities Exchange’s companies at Shs3.81 trillion.

The move could come with a ‘special dividend’, to compensate shareholders who currently benefit from both telecom and Fintech assets.

To manage the transition, a source close to the transaction said a “shareholder trust” will hold MTN Mobile Money shares for investors, ensuring they continue receiving dividends.

The telecom’s chief executive officer Sylvia Mulinge reassured shareholders late last year of the company’s commitment to protect their interests by enhancing board independence.

Investors are looking at a potential mobile money spin-off that could come with a special dividend. Photo / File 

Waiting on Umeme

For Umeme, the journey to settle its financial obligations is far from simple. The payment owed is still under audit by the Auditor General and was recently a topic of debate in Parliament's Budget Framework for the Energy Ministry. The Ministry of Finance is weighing issuing domestic government securities to cover the cost.

On January 1, Uganda Electricity Distribution Company Limited officially took over Umeme’s distribution license, which will be effective from April 1, 2025.

This marks the end of Umeme’s 20-year concession, as government has decided not to renew expiring licenses held by private firms, especially in the energy sector.

The Auditor General is working to determine the buyout figure - based on the Lease and Assignment Agreement.

The Ministry of Finance has assured that the funds will be provided promptly to ensure a smooth transition and support UEDCL’s operations.

As for KQ, investors are eagerly awaiting either a strategic investor’s bid or a government acquisition - whichever comes first - or both, to cash in on the potential gains.

Will it pay off for investors?

When developments like these arise, investors tend to get excited, rushing to buy and sell, but the question is whether it's a good or bad move.

We spoke to a financial markets analyst Andrew Mwiima, who is also a financial markets consultant at the Capital Markets Authority.

This situation, he says, is quite tricky for investors, because the outcome of whatever the negotiations are largely depends on the investor's perspective – there is potential for both gains and losses.

Specifically, in the case of Umeme, he says there is a legally binding contract between the company and government to ensure that investors are compensated when Umeme’s concession ends in March.

As Mwiima puts it, if investors consult a legal analyst to thoroughly review the contracts and agreements, the risks associated with this investment are minimal.

“Investors in Umeme will gain either way because it’s agreed upon. There’s a contract,” he says.

However, Mwiima says that whereas Umeme investors might have assurances, the situation with Kenya Airways is different.

KQ is a stock more suited to institutional investors, who are “too big to fail.”

However, the 77,000 small investors have to be strategic and patient to see returns.

Nationalisation of carriers in countries such as Uganda, South Africa, Ethiopia, and now Kenya, complicates things. "For an investor with a long-term strategy, Kenya Airways could be worth investing in," he says.

With potentially falling jet fuel prices and the growth of tourism, the airline may see long-term revenue increase.

However, short-term gains are unlikely, especially for those expecting dividends or capital gains within six to 12 months.

Looking at MTN, the situation is different yet again.

The stock is grappling with issues it has no control over, which has made its price volatile.

MTN is facing the same issue that has affected other East African telecoms, such as Safaricom.

Despite Safaricom's strong performance, its share price has been dropping since August 2021, from a high of Ksh44.66 (Shs1,273.2) to Ksh17.63 (Shs502.6) by January 2025.

“Safaricom is doing well, but investors are undervaluing it,” Mwiima says.

The same is happening with MTN and Airtel, where solid revenue and asset growth aren’t reflected in the stock prices.

Mwiima believes that long-term investors will benefit, as MTN will be more valuable in the future, regardless of whether its mobile money division is separated.

While some short-term investors may be selling out of impatience, there are new investors looking forward to special dividends from MTN Mobile Money once it’s separated from the listed company.

In summary, whether these developments lead to positive or negative outcomes for investors, depends largely on their time horizon and strategy.

For those in it for the long term, the outlook for companies such as Umeme, Kenya Airways, and MTN may still hold promise.

Kenya Airways shares resumed trading last Monday, after a suspension of four years. Photo / File 

What does all this mean for the exchange?

When money and shares exchange hands on the exchange due to developments such as these, it creates a liquidity event, but the question remains; is this good or bad for the exchange?

The short-term spike in activity can be misleading, especially when, as seen last year, Umeme dominated trading due to speculation - if you exclude MTN's secondary offer from the equation.

Mwiima says that such events are significant in driving market activity on the counters involved.

This activity increases the market turnover and likely boosts the market capitalisation of these stocks - something institutional and foreign investors tend to favour.

Rather than being negative, developments like this are generally positive for the exchange.

“When you look at the most active counters on the local exchange, you notice that banks like Stanbic and Baroda dominate, with some contribution from MTN and Umeme. Now, with Airtel coming into play and MTN beginning to dominate, financials are picking up. When you add developments like this, it’s a positive for the exchange,” he says.

However, volatility remains a downside. Using Umeme as an example, there is an expectation that compensation could be three times the share price - possibly around Shs800 per share.

Many investors are speculating on this, which leaves the stock price unstable. The volatility that arises from such speculation is a negative factor, as it can distort gains of other shareholders’ holdings.

In short, while the short-term activity caused by these events may appear to be a market boost, the underlying volatility can present challenges.

Still, Mwiima suggests that the overall impact on the exchange is more positive than negative, as it attracts investor attention and increases liquidity.