27 September 2010

Tanzania: When to Buy Shares at Dar Es Salaam Exchange and Benefit Most

Dar Es Salaam — KNOWING when exactly to buy shares is a crucial part of investing at Dar es Salaam Stock Exchange (DSE), but many local investors miss golden opportunities for lack of such knowledge.

Many investors in securities usually go for initial public offers (IPOs) during the primary market, when shares are sold at lower prices and most of them are sold shortly after listing on the exchange - the secondary market.

"This is the fast way of making a quick profit and the risks of losing the value of an investment is minimal, especially in cases where there are oversubscription," says Rasilimali Limited Chief Executive Officer (CEO), Mr Arphaxad Masumbu.

"Nevertheless, this is one way of investing in stocks but does not stop there. There are other several good options that could give good returns on investment," he adds. "The other right time to buy shares is when prices fall.

But at this time 'one must first spend a lot of time on research,' Mr Masumbu says. Mr Masumbu suggests that investors should consider if the company wants to buy consistently and beat earnings estimates.

"They should also assess the company's outlook for the current quarter and year," he notes. It makes sense to buy a company figuring how it is going to do in the future, considering both the company's earnings and its plans to grow.

Tanzania Securities CEO, Mr Leandri Tairo-Urassa said at the moment it is the ideal period to buy CRDB shares. The shares are selling below IPO price at 110/- (IPO 200/-) a unit but the bank keeps making profits. "The shares are cheap while dividends and earnings have gone up.

CRDB is still a good bank which is doing well - any long time investor would obviously buy its stock banking on the gains that are likely to accrue in the near-future," Mr Tairo- Urassa says.

At the moment returns for CRDB Bank shares are about 12 per cent. The bank's shares sell at 110/- each and expect to gain in coming months because supply is dwindling. CRDB last year posted a net profit of 40.5bn/- which investors expect to see earning per share increased.

Another good product with high yields is Dar es Salaam Community Bank (DCB) shares whose dividends are expected to double this year. Last year DCB's dividend yield was 20 per cent: "No other assets can give an investor such a yield and expect to rise in this year," Mr Masumbu says.

Foreign fund managers have seen a huge economic opportunities in Tanzania. Orbit Securities Head of Operations and Dealing, Mr Juventus Simon said there is high demand of CRDB, National Microfinance Bank (NMB) and DCB by foreigners.

"If it were not for the restriction that bars foreign companies with over 60 per cent ownership to purchase shares at the DSE, we could have seen a great involvement from overseas," Mr Simon said.

And this trend worries stock brokers because local buyers are not realizing the opportunity of buying shares when the price is low or secondary trading with expectation of gaining in the future. "If you are not awake today our neighbours will overtake us once we harmonizing our stock markets in the (East African) community," Mr Masumbu said.

Another popular factor in determining whether or not to buy a stock is the Price to Earnings (PE) ratio. The way to find this number is to divide the price of the stock by the amount it earns per share. Some brokers say that a ratio of 20 or lower is ideal; others have different opinions, however.

For example CRDB share PE ratio is 5 and DCB is 4.6 but Twiga Cement ratio is over 60. If you buy a share at low prices you will always get a chance to make a profit at some stage. Warren Buffett, the big American investor, calls it the "cigar butt" approach to investing.

"A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the bargain purchase will make that puff all profit." Buying stocks in a company is relatively easy once you've researched the stocks you're interested in and have a broker or brokerage account to handle your purchase. But not wait only for IPOs.

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