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Umeme gains from market uncertainty

Saturday January 09 2016
use

Umeme counter gained from uncertainty among institutional investors after Uganda Securities Exchange-listed banks failed to declare half-year dividends. PHOTO | FILE |

The Umeme counter gained from uncertainty among institutional investors after Uganda Securities Exchange-listed banks failed to declare half-year dividends.

Failure to pay dividends was attributed to overvalued share prices and rising interest rates during the last six months of 2015.

Institutional investors shun stocks of listed banks during the last six months of 2015, with some reinvesting in Umeme.

Listed banks did not declare half-year dividends last year, a trend that began in recent years. This however, boosted the Umeme counter in the final months of 2015, market observers say.

Following  payment of full-year dividends for 2014 at the end of August, many institutional investors sold shares in Stanbic Uganda (SBU) and Bank of Baroda (BOBU), hoping to reap from increasing interest rates and Umeme’s interim dividend of Ush10.8 ($0.03) per share declared for the period ending June 2015.

Umeme posted a half-year loss of Ush4.5 billion ($1.3 million) at the end of June 2015 on the back of rising foreign exchange related costs incurred on dollar denominated debt and imported equipment.

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Interest rates earned on government securities rose notably in the third quarter of 2015 as Bank of Uganda struggled to save the depreciating shilling in July. Reluctance by the Central Bank towards sustaining interventions in the forex market partly drove the shilling to a record low of Ush3,720 against the US dollar between July and September as investors rushed to expand their dollar holdings in anticipation of sharper currency depreciation in the near future.

Consequently, BoU slashed liquidity levels in the interbank market — a special window that enables banks to borrow short-term funds to cater for cashflow needs to discourage currency speculation activities.

As a result, yields earned on the 91-day treasury bill rose from 13.2 per cent recorded in the second quarter of 2015 to 16.4 per cent during the third quarter, BoU data shows. Yields earned on the 364-day treasury bill increased from 15.5 per cent to 17 per cent over the same period. Yields registered on the two-year treasury bond increased from 16.5 per cent in second quarter to 19.1 per cent in the third quarter.

Yields recorded on the five-year treasury bond rose from 16.8 per cent to 18.9 per cent over the period under review.

Umeme similarly witnessed stronger investor interest, with the counter dominating trading activity between September and November last year.

In September, Umeme’s turnover at USE grossed Ush10.51 billion ($2.85 million) against overall market turnover of Ush12.28 billion ($3.34 million) recorded over the period, according to data compiled by Crested Capital Limited, a stockbrokerage firm.

The power distributor’s share price closed at Ush620 ($0.18) in September compared with Ush470 ($0.14) recorded at the end of July.

Turnover levels registered on the SBU, DFCU Ltd and BOBU counters amounted to Ush839.37 million ($227,966), Ush567.8 million ($154,209) and Ush320.8 million ($87,128) respectively over the same period.

Umeme accounted for about 78.73 per cent of total USE turnover, with 48,515,718 shares worth Ush11.7 billion ($3.4 million) traded on the counter by close of October 2015, Crested Capital data indicates.  Its share price increased from Ush619 ($0.179) to Ush638 ($0.19) at the end of the month.

Total USE turnover grossed Ush14.9 billion ($4.4 million) in October compared with Ush12.28 billion ($3.63 million) posted in September 2015. Turnover recorded on the SBU, DFCU and BOBU counters stood at Ush1.64 billion ($486,142), Ush989.96 million ($292,628) and Ush204.63 million ($60,488) respectively over the same period respectively.

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