Strong foreign investor interest has spurred activity on the Umeme counter on the Uganda Securities Exchange over the past few weeks, causing surges and declines in its share price.

The price movements and the interest in the power utility’s stock has given brokers and shareholders a reprieve after a period of stock dumping.

In late June, Umeme Ltd’s share price jumped from a record low of Ush405 ($0.11), to Ush428 ($0.12) earlier this month. It closed at Ush452 ($0.124) on July 14, reflecting a 11.6 per cent gain in three weeks.

But the company’s share price fell to Ush429 ($0.118) in the subsequent trading session before stabilising at Ush430 ($0.118), on the back of block trades by foreign investors.

For example, a block trade of one million Umeme shares selling at Ush430 ($0.118) each was transacted on Wednesday morning, July 19.

The counter registered total trading volumes of 1,232,320 shares and total turnover of Ush529,892,600 ($145,558), USE’s market trading report shows. On Thursday, the power utility’s share price dropped slightly to Ush429 ($0.118).

European fund

Stockbrokers say the movements were informed by the exit of a large European fund amid a sizeable supply gap and interest from institutional investors based in South Africa and the US.
Whereas the large European fund, whose identity could not be confirmed by press time, is reportedly seeking to harvest substantial capital gains from Umeme shares purchased during the secondary offer in 2014.

Big buyers on the counter are said to be keen on increasing their holdings of energy stocks before the mid year reporting season kicks off.

“There is a large European fund that bought Umeme shares at Ush340 ($0.09) in the secondary offer and is exiting the counter with a desire for capital gains. On the buy side, we see South African and American investors taking up Umeme shares more than others."

"But overall demand remains quite high on this counter because of persistent supply gaps,” said a stockbroker at Crested Capital Ltd who requested anonymity, citing internal confidentiality rules.
The counter registered excess demand of around 7,190 shares mid last week in a sign of growing appetite for the Umeme stock, which has been scarce over the past three months.

Foreign investor

The Umeme counter holds some 1,624,278,005 listed shares, according to USE records.

“We have witnessed a lot of foreign investor activity on the Umeme counter of late. One of the large European funds has been selling off Umeme shares in order to reap capital gains while another big European fund has bought a substantial amount of shares on the counter for the purpose of expanding exposure to energy stocks."

"The impact of new boardroom appointments at the utility firm has not yet been felt among investors,” said Joram Ongura, a stockbroker at SBG Securities Ltd.

Andrew Buglass and Anthony Marsh were appointed non-executive directors on Umeme Ltd’s board last month while Stuart David Michael Grylls, a partner at Actis LLP, left the board on June 20, after a 12-year tenure.

The company is also searching for a new board chairman after Patrick Bitature announced his intention to retire from the firm at the last annual general meeting.

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However, Umeme Ltd’s performance outlook for the first six months of 2017 remains uncertain amid a severe economic slowdown that has diminished consumer spending across many sectors.

“The company needs to address various boardroom issues, particularly on the skill set and professional background dynamics in order to appease concerned investors,” said the chief executive at African Alliance Uganda, Kenneth Kitariko.

Umeme Ltd’s total sales rose by 20.3 per cent to Ush658.7 billion ($180.9 million) at the end of June 2016 but net profit declined to Ush54.5 billion ($14.97 million) from Ush67.6 billion ($18.6 million) during the same period, on account of higher financing costs.

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