Why you should be investing at Uganda Securities Exchange (USE) now

The Uganda Securities Exchange (USE) is currently a quite enviable ‘buyers’ market. A snapshot of the market reveals a free fall on the major stock counters. Precisely, 5 out of the 7 local listings have been trading south over this last quarter of the year. This situation is a result of various factors that have converged to push stock prices to levels that are out of whack with the fundamentals on the ground. These factors include a stringent economic environment that has been perpetuated by a weakening shilling (which has finally begun to stabilize), escalating food and fuel prices and a regional political uncertainty due to the fourth coming general elections in Kenya. The situation has been further aggravated by the fact that almost 50% of investors at USE are Kenyans. The big question to the average Ugandan investor is, ‘Could the time be right to go shopping for shares?’

Warren Buffet once said,‘Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down’ Warren meant that in buying a stock, it’s quite important to determine the stock’s intrinsic value and compare to its market price. The concept is therefore to buy an undervalued stock which will appreciate in value overtime, one commonly renowned as ‘value investing’. Most of these companies at USE, especially those in the banking sector, reported above average half year 2011 financial results. Well, not to forget, the Bank of Uganda (BOU) legislation early in the year which required all banks to increase their reserves by a massive 400%. We could therefore argue that listed banks at USE are more valuable than before. Below are recommended ‘buy’ counters basing on several cues.

Bank of Baroda (BOBU)
Top on the list is Bank of Baroda Uganda (BOBU) which reported an impressive 48% in net profit growth during the half year results. Despite such an admirable performance, the company’s share price which stood at Shs. 700 after a 1.5:1 bonus issue early during the year has steadily been falling (mainly due to the bonus which culminates into a cheaper share) to the current Shs. 200. This implies the share is selling at PE ratio in the regions of 9.5, which is slightly higher than the sector average. Impressive though is the bank’s huge retained earnings. In fact, it easily responded to BOU’s requirement by capitalising some of these earnings through the bonus issue. The bank’s growth prospects are also quite high given the fact it enjoys a sizeable share of the Indian business community in Uganda. With such strong fundamentals and an expected average annual net profit growth north of 20%, we could consider BOBU undervalued and hence a perfect buy that will lead to sizeable future gains on its price.

Uganda Clays Limited (UCL)
The infamous brick maker has been loss making for the last three consecutive years. 2011 half year financial results however saw it edge into profitability with a meager profit of Ushs. 1.2 Billion. Could this have meant the dawn of a new day for UCL? Well, quite worrying is its huge loan book which resulted into huge interest payments that led to negative 3Billion half year operating cash flows. Thanks to NSSF (major shareholder) for extending a cheap loan to the brick maker, the company would otherwise be a bed time story now. With cheap cost of capital at hand, UCL presents one of the best opportunities for gains on its stock price which currently stands at Shs. 45. Notably, the company substantially upgraded its manufacturing front last year (2010) which led to significant cost savings in 2011. Basing on the current turn of events it’s a must buy evidenced by the fact that it’s currently selling at an impressive PE ratio of 35.2(Based on half year results).

British American Tobacco Uganda (BATU)
The leaf business has overtime been a ‘must invest’ for most seasoned investors. Actually, Warren Buffet was once quoted to have said, ‘I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.’ A snap shot at BATU relative to other listed companies at USE should tell you it’s the cash cow to scramble for. This fact alone has made BATU a bullish counter unlike all the others. Notably, for the year ended 2010 shareholders bagged an impressive Shs. 228 dividend per share. Tell you what... no other company at USE can match this. What makes the difference? I suppose the dividend policy at BATU. Notably, during the financial year 2009 when BATU’s retained earnings stood at NIL, the company went ahead and paid out Shs. 2.8 B to shareholders. With such a generous dividend policy you can only expect loyal shareholders, hence at the current price of Shs. 1840 there is still room for appreciation.

Ultimately, it’s worth noting that we are likely to experience a reversal of the current trend (plummeting stock prices) at USE in the near future as the effect of different economic and non-economic factors on share prices evens out. The average Ugandan investor will therefore moan at the complete change of events but I guess it will be too late.

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Owning East Africa: What are the ramifications?

The year 2011 has seen the successful initial public offering and consequent listing of three stock counters in East Africa namely; Bralirwa brewers (A subsidiary of the Heineken Group), Bank of Kigali both at the Rwanda Stock Exchange as well as British – American Investments Company (Britam) on the Nairobi Securities Exchange.  While the public response to the Rwandese offers was overwhelming, the Britam offer proved a lame duck having recorded an under subscription by 40%. One of the reasons for this outcome has been said to be its coincidence with the Bank of Kigali IPO. With the benefit of hindsight on the exemplary performance of Bralirwa, I believe, investors in East Africa braced themselves for a gold rush on Bank of Kigali (BK). True to their perception, the stock seems to be a performer having been listed at Rwf 125 and closed trading on the first day at Rwf 200. The stock has since then been oscillating above its listing price with its most recent pricing at Rwf 137. As we wait to see which way the wind is blowing at the young Rwanda Securities Exchange (RSE), it would be wise to understand the region and probably pre – empt future offers. 

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Building Wealth: Derrick’s One Brick At a Time Story Part II

‘When I get married, this will be my children’s bedroom so that implies that I’ll have to shift to the master bedroom, the beauty is that it will be complete soon. The reason I broke that wall is because I’ll want my wife to have a spacious kitchen,’ said the jolly Derrick as he gave me a guided tour round his three - bed roomed house. A brief view on the outside, the house occupies half the plot (100ft by 76ft) and beside the house is a kitchen garden. The remaining section of the plot is occupied with banana stems and his future plans are to set up a few rental units on it. As I sat back on the comfy sofa at Derrick Ssekitoleko’s living room, he continued to reminisce about his humble beginnings and hardly did I notice a chilly breeze that had me butt in on his narration to lament that it was getting cold. In reply to my interruption, he said, ‘sorry kid, this place is a little chilly in the evenings, but I love it. It’s my home,’ briskly rising from the sofa to shut the open door as well as the windows.

No hefty job offers

With the warm aura in the house I recollected a fact that had caught my attention previously....

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Building Wealth: Derrick’s one brick at a time story

Amidst this current hue and cry due to high commodity prices and the high cost of living, it would be insane for a low income earning man to dream of achieving any major financial milestone other than to probably diligently pay his bills in time. Well, that’s why one muganda philosopher called this city a ‘Kibuga’ (a city). Another muganda philosopher has continued to build on this earlier work and he has been reportedly heard to spread a Luganda proverb that ‘Kibuga sikya ba fala’ (Kampala city is not for the uncanny). With all due respect, this young philosopher has been aiming to communicate the fact that Kampala city is a ruthless one and only by beating the odds that come along with ‘Kibuga’ can you then claim your share of success. This simple truth had dawned on Derrick Ssekitoleko way back during his graduate studies in accounting at Makerere University Business School. He knew that going back to Mityana, his home town, to live rent free after his university education was not an option simply because it’s only in the city that he could easily eke out a living. He therefore dreamt of owning a house and hence significantly cutting his cost of living in the city. The logic here is if he kept the landlord at bay, chances are that he would only worry of how to commute to the city and obviously his belly. 

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Investing in Foreign Stocks: Could it be a nightmare?

Statistics show that approximately 20,000 native Ugandans participated in the Safaricom initial public offer (IPO) back in the year 2008. To the best of my knowledge, many of these were first timers that had heard of the Stanbic Bank Uganda (SBU) windfall and thought Safaricom, vis-à-vis SBU, to have been a Toyota Corolla compared to a black mamba bicycle. Well, the informed investor had learnt his or her lesson with the earlier Eveready Kenya IPO, a company which till to date is grappling to survive amidst meager profits. Whereas 20,000 native Ugandan investors were caught up in the Safaricom hype, you should be shocked that there are approximately 15,000 native Ugandans that have proudly decided to invest at the Uganda Stock Market.   This rather odd behavior with Ugandans, pardon me if you think otherwise, is what I would liken to the preference of Gucci branded items yet there are similar cheaper and quality local products in abundance. The sad story is that the first time investors at the Safaricom IPO now view the stock market like another casino. Could investing in foreign stocks therefore be a nightmare? What do you stand to benefit from on the other hand? 

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Investors’ Dilemma: How to steer clear of common misconceptions.

In the previous issue we looked at common investing misconceptions at the Uganda Stock market. In this issue, we continue to unearth these misconceptions and know just how well investors can avoid them. We laid emphasis on the need to shop for an investment advisor. Understanding share price ramifications takes skill and experience. Currently in Uganda, all stock brokers are licensed by Capital Markets Authority to offer investment advice. However, just like any other type of advice, say marriage advice, investment advice can always be availed by who ever has the opportunity and the platform to do so, hence the term ‘cheap investment advice’. This cheap investment advice will however always come in handy to bite you in the long term. My take is that you look out for an experienced investment advisor who will be willing to pay close attention to your needs whether retail or institutional. Crested Stocks and Securities are by far the largest brokers in terms of retail clientele, the beauty is that they offer tailored investment advice at no cost.

Cheap doesn’t imply future value

I presume that at this stage of the debate, you have already secured yourself a Securities Central Depository (SCD) account. Well, I’m no exception. Not only have I signed up for one but I have gone a notch higher and purchased some 400 shares of ‘company XYZ’ that I prefer not to mention here.

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How you could redefine your income this financial year; part 2

Last week, we laid out the necessary steps to commencing an online income stream through trading currencies (Forex), stocks, futures, options, Contracts for Difference (CFDs), commodities like oil as well as metals, say, gold. In a snapshot however, CFDs can be used to trade the rest through a buyer-seller contractual arrangement. Well, it’s quite reasonable to understand every nook and cranny of the trade because investing has its rules. One such rule is, ‘Never invest in something that you have no knowledge about whatsoever.’ Mike Tyrell, our informant from part one of this feature, comments that, ‘I don’t know how to buy and sell matooke, so I keep away from it!’ Mike’s humble beginnings on the trade were not an exception as he took one year of learning before he undertook any trading exercise. Once you have bagged enough concerning the trade, you can then join me for a roller coaster ride as I examine what exactly will make you tick amidst this rather turbulent and yet a pretty rewarding trade.

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Business Lessons from the Facebook Story

I have been a hunter and gatherer for quite sometime now. Ask GNL and he would probably call me a hustler. The intention here is not to discredit myself but quite vividly I happen not to be the type that will pop into a casino full of billionaires and gamble buildings like they reputedly do. My gut tells me that I’m probably not the only one. That may sound consoling, nevertheless, its time for you and me to board a roller coaster destined to the haven ‘billionaires club’. It’s a tough journey but we can learn from experiences of those that smartly struggled and today they smile all the way to the bank. One such experience is the Facebook Story, the story of a US$25 billion company that was built from scratch by a group of Harvard University undergraduate students.

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Investment Clubs: The Ugandan Rats Story.

How well have you positioned yourself for a great financial future? Hang on a second… Are you confident that your current investment efforts will yield a much better return? May be you have strategically positioned yourself for that huge ‘insider deal’ at your work place and before you know it your name will have flooded on the local print media. Hope not because this is your wake up call!

It’s just hilarious to hear them call themselves ‘The Rats’. I guess you abhor these small creatures like I do unless you come from Tororo where am told they can eat them to convey their anger. My perception of them though, as I write this, has changed.  Certainly there is a brilliant reason why a team of seventeen Ugandan ‘moguls to be’ prefers to be called ‘The Rats’. Together they boast as one of the few modern investment clubs our mother country has ever had, The Rats Network Savings and Investment Group(RNIG). We may be making some unforgivable assumptions here, what is an investment club?  Jesse Ibanda, the chairman, RNIG confidently defines such a club as ‘a group of friends or co – workers who typically meet regularly to, create a pool of money and discuss investment ideas so they collectively make decisions on investments, members usually take turns reporting and researching on possible investments.’

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How To Create Multiple Income Streams

Its fascinating listening to a wealthy man narrate when he made his first billion shillings cheque. Well, most of us are left to just say ‘wow, so lucky!’, and we walk away. Then next thing we do is buy any ‘how to get rich’ book, attend the ‘you can do it!’ seminars as long as they guarantee financial success. Often our financial status hardly improves. After giving a few advises a try we ultimately paint the ‘being rich story’ a myth. The big question is; “Is everyone entitled to financial success?”

Acquire the right skills

The reason as to why some people will remain to be enormously rich is due to their possession of particular skills. The basic knowledge of the market place is that buyers pay for the value derived from a service or product. Hence these wealthy chaps have mastered the art of delivering value to the market place. Our earning capacity will therefore more than often be defined by the quality of skills that we offer at the market place. However, someone might object to such a reasoning and say ‘What if I sell goats and cows?’ This person may beg to differ and say that he or she requires ‘no skills’. There are so many traders in that category and most often we use them as illustrations to the fact that we don’t need to improve our skills. A keen look at these traders will only leave you with one answer: ‘He who has mastered the skill or the art of selling goats and cows makes the most money’. A skill could be learnt from school or acquired through experience, it doesn’t matter. Most importantly, a perfected skill will attract a substantial pay. Just ponder this, ‘Donald J. Trump, the famous real estate mogul, earns so much from his real estate projects sometimes much more than the projected figures.’ Is it that he injects a lot into each project? Not really. He will tell you, “It’s mastering the art of the deal”.

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How To Manage Your Savings

Being in possession of some savings in whatever form is an aspect that most cultures try to inculcate in individuals from an early age, that’s why you must have come across the saying ‘save for a rainy day’. Being a widely preached topic, it’s quite easy to assume that we all save and hence in the advent of a rainy day we will all have some huge shelter to run onto. This is not the case as amazingly few people can proclaim to have enough savings that would run them for the next calendar year, God forbid, if they got paralyzed to the point of not working at all. On the other hand, most people find it quite hard to manage their ‘savings’. How then can we solve these two dilemmas?

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