Uganda: 'Stanbic Effect' Drives Bull Run On Kampala Bourse

Source from:  The East African (Nairobi) 18 December 2007 12/19/2007

Uganda's stock market is experiencing a bull run as the impact of the phenomenal demand for last year's Stanbic IPO continues to be felt. While there is increased demand across the entire bourse, stocks that have benefited most are British American Tobacco Uganda and DFCU, which were previously performing below par. In the past three months, the fortunes of these companies have turned around, with demand for their shares rising. Stockbroking firms in Kampala say the three-month bull run is likely to continue and see the market completing this year on a high note. Kenneth Kitariko, head of sales at fund management firm African Alliance told The EastAfrican that increased activity on all counters of the locally listed companies has seen several firms' stocks appreciate sharply benefiting from the spillover effect of increased demand for Stanbic shares. "Initially, the highest demand was for Stanbic shares, but as supply started going down, the market saw a spillover effect on other stocks," said Mr Kitariko. BAT Uganda and DFCU shares, only a few months ago, were fetching prices as low as Ush300 ($0.17) and Ush380 ($0.2) respectively. With their shares now trading above Ush700 ($0.4), the two have turned the corner. Top executives at these companies have taken major business decisions that have stabilised their operations. BAT cut costs to post an after-tax profit of Ush31 million ($17,714) - the first in three years - in its half-year results announced in August. On its part, DFCU has come out of its inward focused business model to integrate the operations of its commercial and medium to long-term lending departments. As a result, its share price has gone up lately, buoyed by demand for Stanbic increasing while its supply went down. For instance, during last week's trading, Stanbic opened at Ush205 ($0.1) before institutional demand against low supply drove the stock to close at a high of Ush210 ($0.12). But at these times when there are no Stanbic shares on sale, investors have turned their attention to other companies. BAT Uganda, troubled over the past three years by smugglers infiltrating its market and a restructuring exercise that led to the closure of its cigarette manufacturing plant in Jinja, saw its share price tumble to Ush300 ($0.17) in August this year, against its USE debut price of Ush1,000 ($0.57) in 2001. The company, however, has seen its fortunes revive since it announced half-year results in August this year. At Ush690 ($0.39) last week, BAT is back on its way up. Moreover, there was outstanding demand for 80,000 shares at Ush710 ($0.4), for which there was no supplier. Managing director Serhat Eroglu told The EastAfrican in an August 2007 interview that his company would export 16 million kgs of processed leaf this year compared with last year's nine million kgs. New Vision Ltd is the other high performing stock, having moved from just over Ush400 ($0.2) to Ush1,090 ($0.6) the same period. It has been riding high on the waning supply of Stanbic shares, but its board's move to expand and approve a rights issue has also boosted the media company's stock. New Vision recently opened a radio station and has already acquired a license to start a television station next year, a move it proposes to finance with the rights issue. Going by the current trend, stock brokers advise that all the locally listed companies are good buys, including BAT Uganda which is still selling below its IPO price. "BAT is still below its IPO price, but right now people are looking at it as a reasonable stock. If the company continues with this trend, the stock will reach its IPO price sometime next year," said Mr Kitariko. Edward Ruyonga, a stockmarkets analyst, said it is advisable to buy shares now considering that most companies are heading for their financials at the end of December. Buying stock now entitles the investor to a dividend at the same rate as an investor who bought at the start of the year. Trade volumes at the counters of the three cross-listed companies remain minimal, with the major mover in recent times being Jubilee Holdings Ltd from Ush6,252 ($3.57) to Ush6,310 ($3.6), while Kenya Airways and East African Breweries Ltd have both registered drops from Ush1,966 ($1.1) to Ush1,760 ($1) and Ush4,750 ($2.7) to Ush4,552 ($2.6) respectively. All six counters of the locally listed companies have registered massive activity, pushing the USE total market capitalisation to Ush6 trillion ($3.4 billion), up from Ush4.5 trillion ($2.5 billion) in July 2007. The seven-year old USE is said to be an attractive "emerging" market for investors from outside Uganda, which explains the massive activity, as the bourse has reduced tax on dividends from 15 to 10 per cent, and does not have a capital gains tax. Enditem