The Observer (Kampala)

29 November 2012

Uganda: Umeme Lists Shares Today

Photo: New Vision
Umeme officer doing maintenance work.

Umeme will list its shares on the Uganda Securities Exchange this morning, bringing to the market the 15th player, and adding at least $200m in market capitalization. The utility firm released its share allocation results on Wednesday - two days before the listing date - showing that almost every pool of subscribers, apart from the East African Qualified Institutional investors and the international investors, received the full amount of shares they had applied for.

Umeme officials say the initial public offering (IPO), where it offloaded almost 40% of its shares to the public, was oversubscribed by about 35%. Attention now turns to what just might transpire this morning.

In the event that an IPO was oversubscribed, the usual sentiment among investors is that those who might not have received the full allotment they asked for could try and snap up shares on the first day.

Therefore, some shrewd investors might want to sell off their shares on the first day in order to make a kill. Should there be high demand for the stock, then the price could go up.

Nowhere in Uganda's history has this form of trading become so clear like when Stanbic bank listed its shares on the USE early 2007. Back then, the share price, on the listing day, shot up from the IPO price of Shs 70 and at one moment touched Shs 230 during the more than one hour of trading.

Crested Stocks, one of the brokerage firms which participated in the Umeme IPO, believes that the Shs 275 per share price was rather low. The brokerage firm feels that Umeme's fair value is Shs 323. "We make a BUY recommendation for Umeme based on a fair value of UGX 323.

Our estimates assume strong revenue growth but decreasing operating margins in FY2012," says a note from Crested Stocks. So, will Umeme's share price jump to margins such as Stanbic's or even the fair value of Shs 323 as Crested Stocks recommends? It will be a bold bet to think the stock will jump that high.

For starters, Umeme and Stanbic are different. When Stanbic listed, there was a huge excitement about stocks in the country. In fact, Stanbic's IPO, which attracted 35,000 clients, was oversubscribed by more than 300%.

Umeme, on the other hand, has brought 4,000 - 5,000 new clients to the market, according to Joseph Kitamirike, the Chief Executive Officer of the USE, many of whom appear to have received their full allotment.

Then again, Umeme, with all its troubles and bad PR, is not a company that excites the public. Cautious investors might want to give the stock some time, in a let's-wait-and-see game, before deciding to buy into the company.

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