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Uganda: Exciting Times As Uganda Clays Goes Through the Roof
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The Monitor (Kampala)
OPINION
4 May 2008
Posted to the web 5 May 2008
Martin Owiny
This week the Uganda Securities Exchange (USE) was abuzz with excitement as shareholders in Uganda Clays reaped big after the recently concluded rights issue.
Many argue that Uganda Clays is the USE's best kept secret, essentially because when its Initial Public Offering (IPO) took place in October 1999, few Ugandans appreciated the significance of shares and actually participated in that IPO.
At a recent count the total number of shareholders in Uganda Clays numbered less than 1,000, this is a far cry from the approximately 20,000 Ugandans who participated in the Stanbic Bank Uganda IPO.
Shareholders in Uganda Clays who have chosen to hold their shares close to their chests have reaped big! They have seen the share price grow in value, resulting into the price appreciating so significantly that it was perceived to be too expensive.
At that point, so as to make the stock more affordable, the company instituted a share split resulting in each shareholder receiving additional shares for each share held.
Then came the USE's first rights issue instituted by Uganda Clays. At this rights issue each shareholder was given the opportunity to purbuy additional shares, being their "rights" to additional shareholding. So attractive was the offer that shareholders oversubscribed their rights and bid for more than they had been offered.
This was an indication that demand for the company's shares was high, reflecting the fact that Uganda Clays is viewed as an attractive investment.
These players in the investment industry were therefore holding their breath waiting to see where the Uganda Clays share price was going to go after the rights issue. The big bang came last week on Tuesday, April 29.
Uganda Clays released their 2007 financial statement and as a result of that the share price gained 49.2% closing at a heady Shs10,495 after starting the day's trading at Shs7,030. This is by no means a small accomplishment! As a result shareholders who participated in the rights issue were laughing all the way to the bank.
These shareholders had bought their shares during the rights issue at a discounted price of Shs2,650. As at Tuesday some of them sold their shares at a price which is almost four times the price of purchase, effectively quadrupling their returns!
The Uganda Clays financial statement was so exciting because profit for the year increased 61.25% to Shs2.1 billion in 2007 from Shs1.3 billion in 2006 and total revenue to the company increased 17.18% from Shs9.9 billion in 2006 to Shs11.7 billion in 2007. Production also increased 38% from 36,361 tones in 2006 to 50,088 tones in 2007.
All this occurring on the back of the company's proposed expansion programme to build a second factory in Kamonkoli, near Mbale in Eastern Uganda. The said factory is targeting supplies to the rehabilitation efforts in the Northern and Eastern parts of the country as well as in Southern Sudan.
Our proposal to the company would be to make the feasibility study for the said project public so that we can have even more public buy in.
As we look to the future we do realise that share prices do go up and they do come down. However, it is worth noting that investor confidence in Uganda Clays is quite high with stock brokers anticipating further increase in the price with the possibility of a second stock split.
Whichever way things go, in many ways it can be argued that Uganda Clays has pioneered stock market development in Uganda. It was our first IPO in October 1999 and it was the first company to do a rights issue on the same bourse.
Now that its rights issue is done and investors in Safaricom are holding their breath waiting to see what the levels of oversubscription are going to look like, all eyes now shift to the possibility of another rights issue by the New Vision, which may be looking for additional funds to facilitate expansion into the radio and television media industry. After the initial success of Uganda Clays let's see how this will turn out.
If one wants to participate in the proposed New Vision's rights issue, one needs to bear in mind that they need to be a shareholder in the company. Something they can become by visiting their preferred stock broker to facilitate purchase of shares. It is only shareholders that can buy rights, because rights are an opportunity to existing shareholders to buy additional shares.
Uganda Clays' pioneering endeavour at rights issue's also opens up a new arena for Ugandan corporations; that is the fact that there are different options for one to fund their proposed projects.
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One does not only need to visit a bank or alternative financial lending institution to obtain funding. You can go to the Stock Exchange because there are a number of Ugandans who would like to participate in funding your project on condition that they get a return.
This also presents a case for pension reform and the institution of a pensions' regulator, because establishment and encouragement of pension schemes at employer level would also give the average Ugandan additional avenues to participate in the Uganda Securities Exchange.
Mr Owiny is general manager of Stanbic Investments, East Africa
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