18 February 2013

Uganda: Institutional Investors Rush for Umeme Shares At USE

Kampala — From the day Umeme's shares commenced trading at the Uganda Securities Exchange (USE), the bourse has witnessed increased activity with huge volumes of shares being traded on the power distributor's counter.

By the close of January the power firm closed the month on a high note, trading its highest daily volume (20 million shares) and generating its highest weekly turnover during the last week of January.

The counter's average daily volumes continue to show signs of increasing, with recent daily trades of 5 million, 4 million, 20 million and 7 million shares.

According to a statement from Crested Stocks and Securities, it appears that trading is still dominated by institutional investors on the buy side, however, smallholder retail investors seem to be decreasing on the sale side as the bonus share supply reduces and institutional investors continue to increase on the sale side.

The fear among some analysts is that as more institutional investors take up more shares, activity on the Umeme counter and ultimately at the bourse could go down since institutional investors rarely sale but hold onto shares for long.

Dan Edoma, a securities analyst with African Alliance says that it may in the long run have an impact but adds that the trend of keeping shares for long seems to have reduced.

"British American Tobacco (BAT which mainly has institutional investors) pays very good dividends usually above Ush100. So it makes more sense to hold onto those shares. But we expect Umeme to become like the Stanbic Bank counter; always liquid," he said.

He however notes that there's a huge uptake of Umeme's shares from institutional investors mainly because there side during the Initial Public Offer (IPO) was over-subscribed.

"Many people buy during the IPO with the aim of selling off in the secondary market. So currently short-term investors are exiting after getting a percentage on their returns. Umeme being an energy utility firm, there will always demand for the product and so the anticipation of good performance will keep the counter liquid," Edoma adds.

Since listing in late November 2012, Umeme has significantly boosted turnover at the USE, generating a total of USh25.6b ($9.8m) over 30 trading days.

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