Uganda: Batu Shares Suffer As Investors Exit

Source from:  The Monitor (Kampala) 28 August 2007 08/28/2007

A sell-and-run mood has gripped investors in the British American Tobacco Uganda shares, driving the price to unprecedented rock-bottom levels. By close of trading last week, the share price had plummeted to Shs300, shading off Shs20 from the previous trading and hitting a 70 per cent dive below its Initial Public Offer of Shs1,000 seven years ago. Market sentiments indicate that individual and institutional investors have been offloading their shares for re-investment in other equities with better prospects after the BATU shares stalled for several months amid reports of stricter regulations on tobacco control. Leading the latest line of exits is the National Social Security Fund, which recently sold about two million shares, ushering in a new wave of exists that have created over supply of the company's stocks in the market. "The current price is because there is oversupply of BATU shares on the market," Ms Harriet Kiwanuka, the USE trading research and market development manager, said. On listing in 2000, BATU shares opened trading at Shs1,205 but started to decline when the company began to make losses, reversing the trend of an otherwise promising start. According to the 2005 annual report, the company's net loss amounted to Shs6,035 million, the epitome of a protracted loss-making trend that began in 2003. At that time, investment advisers suggested that shareholders should sell off their shares and invest in other stocks as the company was not expected to return to profitability until 2008. However, the company's interim results for the first half of 2007 show that the company's revenues have picked up. The firm's revenue increased by 3 per cent last year to Shs131 billion. The recent improvement in the company's bottom line is a result of restructuring measures that have seen the company close its Jinja plant to concentrate on leaf operations, where it enjoys competitive advantage. In an earlier interview with Business Power BATU Managing Director Sehart Eroglu said the company is now focusing on how to improve its competitiveness and the re-capture the international share trade. While the company has registered some improvement in terms of revenue, its share price has taken on the reverse direction in what industry analysts believe is a result of a recent spate of shareholder exists. Mr Davis Gathaara, the head of sales and trading research of the Merchant Bank of East Africa - MBEA - Brokerage Services, said: "Investors are selling off their shares to buy into more profitable counters and also to buy into the upcoming National Insurance Corporation IPO." Stanbic Investments General Manager Martin Owiny said individual investors have sold off their shares due to the poor returns and adverse legislation that bans smoking in public places coming into effect in Uganda. Uganda recently ratified the Framework Convention on Tobacco Control (FCTC), turning smoking in public a criminal offence, which will most likely affect the company's business in the long run. "Uganda 's ratification of the FCTC will not spell the end of the tobacco industry but will instead regulate it to reduce tobacco's devastating health, environmental and economic effects," said Ms Jackie Tumwine, the executive director of the Health and Environmental Rights Organisation, a civil-rights organisation opposed to tobacco smoking. Some investment analysts, however, believe that there is a deliberate attempt by market speculators to drag the price down before they can cash in on profitable stocks when the company finally returns to the profit bracket. Speculators use stock market indicators such as moving averages to predict price changes of a particular stock, then buy large volumes of stock, hold and sell when prices are higher prices are registered. "It takes a hardcore speculator or ill-advised investors to buy into BATU," Mr Gathaara said. The analysts also warn that speculating in a young market such as the USE is a risky venture because of limited liquidity. Mr Peter Mushangwe, the head of research and trading said speculators may fail to sell off large volumes of shares bought because the market may not easily permit that. USE, therefore, has not experienced the kind of speculation strife in advanced stock markets such as the London Stock Exchange. Although BATU has been reorganised into a leaf growing centre and it is envisioned to be one of the leaf growing centres of excellence within the region, Mr Owiny said: "Until tangible results are seen from management, the firm gets back into [profitability] and dividends begin to trickle back to share holders, investors may hesitate to recommend a buy position on BATU." Some analysts predict that BATU share price will fall even further to between Shs100 and Shs200 as a result of a global campaign against tobacco smoking. Mr Gathaara said: "The company's shareholders fund is in deficit of Shs147 million; I would not advise anyone to invest in BATU". Enditem