Despite huge expectations, Airtel Uganda’s initial public offering (IPO) has yielded little buzz and hype on the local stockmarket so far, a result of weak marketing and misgivings about the exclusion of its mobile money services business from the listed portfolio.

The IPO was rolled out on August 30 after a 12-month delay blamed on weak economic conditions by the telecommunications firm.
Under the new telecommunications industry licensing regime, all telcos are required to list on the Uganda Securities Exchange (USE) to increase citizens’ share of industry profits after years of revenue growth.

Airtel Uganda Ltd secured a new operating licence from the Uganda Communications Commission (UCC) in 2021 valued at $70 million.

In comparison, MTN Uganda Ltd paid $100 million for a new 12-year operating licence in October 2020 and issued ordinary shares worth Ush895 billion ($239 million) during the Covid-19 lockdown period.

MTN Uganda shares were sold at Ush200 ($0.05) each, according to the company’s prospectus. Its IPO was undersubscribed by 40 percent while the company’s shares were listed on the USE in December 2021. Now, Airtel Uganda’s shares are being sold at Ush100 ($0.02) each, with eight billion ordinary shares available for sale, equivalent to 20 percent of the firm’s issued shares.

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This translates into a total IPO value of Ush800 billion ($213.7 million).

The offer period is scheduled to expire on October 13 while listing of the shares on the USE is scheduled for October 31.

Positive outlook

Analysts are betting on a positive short-term trajectory for the shares after listing.

A recent valuation report by UAP-Old Mutual Financial Services Uganda carries a “buy” recommendation backed by a projected share price of Ush110.61 ($0.029) over a 12-month period and a two-year normalised earnings cumulative average growth rate of 11.64 percent.

The analysts’ recommendation is also supported by a forecast price earnings ratio of 8.44 alongside a speculative half-year dividend for 2024 estimated at Ush8.5 ($0.002) per share and a projected dividend yield of 13 percent.

But the few active trading counters at the USE and modest share price movements in recent weeks – along with relatively few retail investors willing to sell existing shares to buy Airtel Uganda stock – seem to suggest low popularity of the IPO.

Edward Ruyonga, an equities dealer, told The EastAfrican that he had not seen “anyone trying to sell some of their existing shares in order to buy Airtel IPO shares at this time”.

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“Many people usually utilise fresh cash to buy shares during IPOs. I have met a few people willing to buy Airtel shares but they are yet to conclude their purchases. Most of the transaction activity in local IPOs happens in the last two weeks of the offer period and that may explain why there is low activity in the market right now. But exclusion of the Airtel Mobile Money business unit from the IPO portfolio has discouraged some investors from taking up shares,” he said.

Retail investor Andrew Muhimbise said: “I’ve heard of some stockbrokers who have sold Airtel shares worth less than Ush1 billion ($267,080) so far, but the lead sponsoring broker might post a much larger number in comparison at this time. Nonetheless, the Airtel IPO has probably achieved less than five percent uptake compared to the MTN IPO two weeks after its launch.”

Crested Capital Limited, the lead sponsoring broker for the Airtel Uganda IPO, in an e-mail response to enquiries by The EastAfrican said: “We have seen clients selling listed equities, collecting dividends, and holding on to bond coupons in anticipation of the Airtel IPO.

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The consensus is that Airtel has a strong management team, deep sector expertise stemming from its long history in Uganda as well as knowledge across the Bharti Airtel group, and that Airtel’s growth story is underpinned by a compelling macro environment in Uganda.”

The government’s policy on the mandatory listing of telecommunications companies on the local stock market was partly influenced by rising capital flight driven by multinationals operating in the Ugandan market and short-term currency depreciation pressures caused by massive repatriation of dividends to foreign company headquarters that takes place in May and June every year, according to local sources.

“Investing in a telecommunications company that excludes the fintech unit from its listed portfolio is a very challenging scenario. The fintech business usually brings in more revenue than the mainstream operations and tends to generate higher returns for investors in the telecommunications industry. I’ve not heard of any investor that is seeking to sell some of their existing shares on the USE in order to buy Airtel shares during the IPO period,” said Joram Ongura, former CEO of SBG Securities Ltd.