24 April 2018

Uganda: Banking Stocks Enjoy Bull Rally On the Ugandan Bourse

The share prices of listed banks on the Uganda Securities Exchange (USE) have risen in recent weeks on the back of handsome dividends declared by the lenders.

Stanbic Bank Uganda (SBU) share price rose slightly from an average of Ush29 ($0.008) to Ush31 ($0.0084) almost two weeks after the publication of its full year results for 2017, while DFCU Ltd's share price jumped to Ush777 ($0.2) from Ush715 ($0.19) trading reports show.

Vibrant trading activity experienced on the Bank of Baroda Uganda (BoBU) counter pushed its share price from an average of Ush120 ($0.032) at the beginning of this month to a new high of Ush140 ($0.037) a few days after the release of its 2017 full year results.

SBU's final dividend rose to Ush1.76 ($0.00047) per share from Ush1.17 ($0.00032) per share in 2016.

DFCU Ltd's final dividend increased to a record Ush68.24 ($0.0184) per share from Ush25.19 ($0.0068), as the bank sought to charm investors with a wider revenue stream secured through the acquisition of former Crane Bank assets last year, analysts said.

Similarly, BoBU's dividend per share grew to Ush7.5 ($0.002) per share from around Ush4 ($0.0011) in 2016, despite negligible growth in profits.

"The handsome dividends declared by the three listed banks for 2017 are driving much of the activity witnessed on those counters. But future risks connected to the inflation and exchange rate outlook might hurt investors' returns later in the year," said William Nyakatura, a stockbroker at African Alliance Uganda.

BoBU's latest financial results show its assets increased to Ush1.5 trillion ($404.4 million) at the end of December 2017 while profit after tax rose slightly by 0.32 per cent to Ush49.4 billion ($13.3 million).

The bank's deposits grew by 0.29 per cent to Ush1.2 trillion ($323.5 million) while total operating expenses dropped to Ush109.8 billion ($29.6 million).

DFCU Bank, saw its assets surge to Ush3 trillion ($808.9 million) while its total loans and advances jumped to Ush1.33 trillion ($358.6 million).

Profit after tax rose from Ush46.3 billion ($1.25 billion) in 2016 to Ush127.6 billion ($34.4 million) while total customer deposits grew to Ush1.99 trillion ($536.6 million).

"Strong efficiency gains helped Stanbic grow its bottom line last year while the Crane Bank acquisition paid off for DFCU Bank and subsequently narrowed the profit gap between DFCU and its top tier peers. But DFCU still needs to prove that its leadership can make big money with a much larger operation as opposed to the small business they managed in the past. Nevertheless, I would comfortably buy DFCU and Stanbic shares at this time," said an investment analyst at Uganda's National Social Security Fund who requested anonymity.

Stanbic Bank Uganda's profit after tax rose by five per cent to a record Ush200 billion ($54 million) while its total assets grew by 17.9 per cent to Ush5.4 trillion ($1.46 billion).

Loans and advances grew by eight per cent to Ush2.13 trillion ($575.7 million) while customer deposits expanded by 18 per cent to Ush3.6 trillion ($972.9 million).

"Stanbic Bank recorded strong growth in non-funded income streams while DFCU Bank reaped big from its acquisition of former Crane Bank assets.

However, the recent depreciation in the exchange rate and the spike in global oil prices might affect consumer demand patterns, commercial investment appetite and growth momentum in some sectors," argued Simon Mwebaze, general manager at UAP-Old Mutual Financial Services Uganda Ltd.

"The listed banks performed well last year but it is not clear why they are rewarding shareholders so much at this time. I anticipate Stanbic Bank's share price to hold steady at Ush31 ($0.0084) while DFCU might hit Ush Ush800 ($0.21) in coming weeks.

"BoBU could also rise to Ush150 ($0.04) in the near future but I'm worried about the effects of wider application of the new international accounting standards nine credit provisioning rules on banks' earnings this year," said Andrew Muhimbise, a retail investor.

Uganda

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