Friday, December 12, 2008

Impact of share price fall on Business community

Share traders'

These are classified into two depending on how long they hold onto the stocks they buy:


these have a long-term outlook when they invest in shares here the typical example for our case is the provident fund NSSF and corporate investors.

The impact here is that their portfolio holdings value has contracted (some of NSSF's record earnings of the other year has been reduced) in the short to medium term however on a more positive note there is a sizeable supply of reasonably priced shares.


these invest for short-term and usually need their money back for other needs within a year. In my view these are the hardest hit of all stakeholders: they came in to make money which by the way they did and are still in the positive, but it was way below their exaggerated expectations, these were mainly ushered in after the mammoth (Uganda standard) Stanbic IPO and are now in stampede selling to salvage their remaining returns,

The negative impact is that they have lost 'imaginary' money vis a vis their expected returns and this kind of industry issues like this count- more like a fall in confidence as regards the Stock Market.

Brokerage firms, Uganda Stock Market and Capital Markets Authority

These are the middlemen of the Stock Market nothing happens without their input, they earn off statutory commissions shared amongst them, the Uganda Stock Exchange and the Capital Markets Authority (CMA).

The negative impact is primarily the crisis of confidence gripping share traders' (investors and speculators) then revenues as turnover has nose dived but most of them are either desk offices mainly in banks or subsidiaries of established Brokerage houses and I believe they have alternate sources of income, besides I highly doubt we shall see pre-Stanbic IPO turnover where they survived for over 6 years.

The positive impact has to do with one of my favourite quotes from:

Malcom X "It is only after the deepest darkness that the greatest light can come" this is an opportunity for all the tier one industry players (Brokers, Stock Market and CMA) to bring in as many Investor in the market.

Listed and soon to be Listed Companies

The Publicly listed companies which are six in total have been impacted on perception; especially when share traders' hear of bigger companies in the western world being bailed out there is this misgiving on the heath and operations of a company operating in the third world.

The other impact of this bearish run could be on the ability to raise funds on the market through IPO, rights issue (like NVL did in July), lisiting of Corporate bonds. Let me use the National Insurance Corporation long awaited IPO could have been pushed further fearing the backlash of an under subscription like recently happened to the Co-operative Bank in Kenya where Subscription was 70% (meager considering East Africa recent listings).

The beatiful Lake Bunyonyi found in South Western Uganda, Kabale district
At 900metres deep its second to Lake Tanganyika in Africa.
Can shares in Uganda reach thet depth? I do not know for sure.

Star Trader

Thursday, October 30, 2008

Why Kampala Share prices are tumbling! Think About It.

Prices at Uganda’s only Sock Market in Kampala have been on a free fall over the last few weeks (see Table 1); this has among other things led to stomach ulcers as one of trader’s (investor) complained.
With some Brokerage firms giving inept reasons like School Fees even before schools break off, decided to dig deep and came up with the three core reasons as to why Share prices in Uganda are plunging and assigned each, on a total scale of 10, points for their likely impact on price movement.
Below are the core reasons for the downward price movement.

(i) Fear
Also known as panic, spawning from the current Global Financial Crisis which apparently is presented by some sections of the Ugandan media and ‘experts’: as though what the people who sent a rocket to the moon may not be in a position to solve!
With so much information on Cable Television showing the Developed World Stock Markets sliding each passing day: there is this invisible force that makes us OK with our market coming down (psychology) when we are very aware that the companies listed on our Exchange are LIQUID and do business in the region therefore in part
de-linking them from the major outcomes of this crisis.

Likely effect of the Global Crisis coupled with an optimistic outlook.

True if aid to Uganda reduced because of this Crisis, our financial system would be affected, BUT is it a given that it shall happen? may be not to Uganda because: well aid is a moral obligation almost like religion, starting 2009 Uganda shall be a temporary member of the all powerful 15 member state United Nations Security Council therefore shall be rubbing shoulders with some of the generous donors and lastly we have been able to cut donor dependence to 30% of the National Budget.

Remittances (service export)
Yes our brothers and sisters in the diaspora shall tighten their purses and only release money for the basic needs of life like: feeding, education and health leaving out investment.
On second thought how many of our brothers and sisters are working on Wall Street? Think about it, I mean most of the job losses are in the financial sector unless we are talking about the snow-ball effect that may not happen if the crisis’s impact is lessened early.
Probably a withdrawal by the Americans from the Iraq war would affect us more with 8,000 Ugandans in Iraq remitting close to $60m a year.

Export earning
We export a lot of raw material: coffee, fish, and frankly its not in the developed world interest to shut down their factories that add value to these materials hence the bailouts (nationalisation) currently going on: Given: demand shall scale down but it won’t go away.
That said our biggest export destinations are within the region: South Sudan, Rwanda!

The Global Financial Crisis has no doubt brought a fall in confidence of the investors on the Ugandan Stock Market and this explains the fall in prices as investors are in a stampede flight to safety by irrationally selling their holdings, even though the Fundamentals of our Economy are strong to quote Mr John McCain rightly for Uganda’s case.
Impact on Market: 3 out of 10

(ii) Politics

According to my desk dictionary, politics is defined as: the matters connected with the government or organization of a country or group of countries. In our case it’s the matters concerning a government organization and that is the National Social Security Fund (NSSF) monopoly.
A quick memory refresher about the NSSF: is by far the biggest single (individual or institutional) investor in the Ugandan Stock Market accounting for more than one-third of the free float shares (shares that are freely transferable on the stock market eg Stanbic Bank has a free float of 20% with the other 80% held by Standard Plc South Africa) on the Ugandan Stock Market.
We all know that NSSF has a terrific Liquidity position-recall the 1 trillion Ug shs- this could actually have led to the current NSSF/Temangalo Land transaction (check mainstream Ugandan media for details) which has paralyzed it as a major participant in the Ugandan Stock Market- I mean with the improving Price Earnings ratios of Companies listed on the market looking attractive coupled with a good supply stream of shares : why would the principal Market Investor not take interest or better still buy up the excess supply?; perhaps their board and management are embroiled in the Temangalo Land fiasco fighting for their own life so the stock market is not priority at the moment.
This has starved the Stock Market of its biggest buyer therefore temporarily crippling Demand.
Note: Some of the Fund Managers in the developed world I have exchanged with assign Politics the highest points in their risk assessment parameters for our Emerging Markets.
Impact on Market: 3.5 out of 10

(iii) Safaricom- the IPO aftermath.
Slightly over 6,000 individual Ugandans partook in the Safaricom IPO with Great Expectations; the whole money commitment was around 60,000,000,000 Uganda shillings of which IPO Loans from Commercial Institutions accounted for 16% of that, not mentioning the family & friend’s credit and the informal credit sector (Loan sharks).
Stanbic Bank’s earlier IPO had unleashed a greedy class of Traders’ (Speculators) who were not going to miss the next money train- I mean some arguments went like: Safaricom is the most profitable Company in East and Central Africa, Safaricom is much much bigger than Stanbic Bank: a typical case of 4 wheels of a car being faster than 2 wheels of a bicycle forgetting the speed of 16 wheels of Roller Skates!, yes factually all this was true, but for the many a first-time Ugandan investors this represented the big deal.
Allow me capture this at a micro level
“A friend of mine called me for coffee, lets call him/her Musoke: we had a talk about Safaricom; Musoke started by telling me how he was going to invest 2,000,000 Uganda shillings and sell when the price tripled to 15 Kshs then pay deposit for the Car Musoke had been eyeing for sometime: With the benefit of hindsight from the last Kenyan IPO (Everready) I had partaken in and was bitten I tried to calm down Musoke’s expectations,
But Musoke would not do the same mistake twice: Gwe Andrew I slept during Stanbic’s IPO, that’s not happening again…..”
From this chat I came up with the Safaricom IPO ‘What If’ Minority Report to guide some of my friends with too high expectations.
To cut the long story short well Musoke was devastated and vowed never to return to this ‘CASINO’ called the Stock Market- I added that he should think of coming as an Investor (long term) and not a 100% Speculator.
On the lighter side if say a friend is arguing with Musoke and they want to win the argument- Just sneak Safaricom talk in the argument, ha ha.
Well the above captures the mood of many a first-time Ugandan share traders’ who if Safaricom had not hurt that bad (and still is) would have shifted their new found market savvy ness to the Uganda Securities Exchange: I hope NIC’s upcoming IPO can heal those wounds as long as it’s done the National Microfinance Bank IPO of Tanzania’s way (give locals preference).

Safaricom has created a lot of suspicion, on the workings of the Stock Market, in the minds of Share Traders’ so either they are selling shares in their Uganda portfolio to avoid a ‘Safaricom’ or they are withholding cash that would be used to buy shares for their Uganda portfolio and most importantly it has handicapped some of the big institutional regional investors who heavily bought out its shares after the IPO.
Therefore owing to Safaricom IPO’s Impact we have Supply exceeding Demand at the Uganda Securities Exchange.
Impact on Market: 2.5 out of 10

Think About It
The basic premise of price movements on the Stock Market or generally in business is the Law of Demand and Supply “The higher the Demand the higher the price, the higher the Supply the lower the price and vice versa”
The above 3 points have tilted the tide in favour of higher supply while at the same time withholding demand.
Any HOPE lies in fact that ordinary shares are the fastest appreciating assets in the world!
With relatively cheap shares and a lot of fear in the Stock Market, may be it’s an excellent time to buy-more like a BUYERS PARADISE and this is much easier said than done.
World renowned investor Warren Buffet, the 2nd wealthiest man in the world, is busy picking up stocks of companies with good promise like General Electric (GE) in the USA; I think it would be wise to follow Warren as regards your home Stock Market with companies like: Stanbic Bank and British American Tobacco Uganda in Kampala and yes Safaricom in Nairobi: Think About that.
All the best to you: Investors and Speculators in these interesting times.

Muhimbise Andrew
+256 702 431064
Star Traders’

Wednesday, October 15, 2008

1. As you know, the leading Western economic powers especially America and countries in Western Europe are in the deep of a financial crisis that has far reaching consequences for the whole world. Big merchant banks, insurance companies and associated companies are collapsing every day, literary crumbling like a pack of cards. People who borrow to finance home purchases are unable to pay. There is a growing global credit crunch.
2. The government of Uganda has watched these worrying economic trends, which started with astronomical increases in the prices of fuel and food, with an aloof attitude. Indeed President Museveni celebrated the rise in food prices arguing that Uganda farmers would reap high prices. He did not know that the increase in prices of oil and food would trigger a general rise in the cost of living and lead to the current 14% p.a. inflation. Uganda peasants have yet to benefit from the increase in food prices. Instead they are the victims of high inflation and unbearable cost of living.
3. The financial meltdown in the United States of America and Europe is not accidental or unforeseen. It is the result of their governments' abandonment of basic economic planning and regulation to the altar of a free market. It is capitalism run amock. With the collapse of socialism in the 1990, the promoters of the unregulated market had all the ammunition to push for the removal of any regulation of the excesses of the free market.
4. The result was that what were called Smart Chief Executives in the financial industry resorted to maximizing returns on investment not in production of actual goods but in the manufacture of financial instruments that were traded in primary and secondary markets. A house mortgage by banks, became tradable commercial papers for speculative trading by investment and merchant banks, insurance companies and other smart dealers. With time the layers of transactions, projects and interest based on few physical assets (houses) became unsustainable. The day of reckoning had come.
5. With the liberalization of the Uganda economy, which effectively meant privitisation of state enterprises, retrenchment of public servants leading to massive unemployment and out sourcing of work ordinarily done cheaply by public servants. Uganda joined the free world of smart investors or speculators. The people who have amassed wealth in Yoweri Museveni's regime are not the producers of real wealth but the smart dealers and the corrupt who supply to government and its agencies at exaggerated prices and then speculate in real estate diving prices of land especially in Kampala to levels beyond the reach of the working people. NSSF has joined this property speculation.
6. The working people who have been pushed to the wall, have now been enticed by the basically unregulated banking industry, especially the ever mushrooming micro credit institutions to borrow to acquire homes and several times for ostentations consumption (including lavish weddings) in imitations of the dealers. It is only a question of time when large scale defaults will lead to an unprecedented credit crunch in Uganda. The earlier economic boom under the NRM ended with the collapse of Tefee Bank, Greenland Bank, International Credit Bank, Cooperative Bank, Trust Bank, and the near collapse of Uganda Commercial Bank and Uganda Development Bank.
7. The Uganda Peoples Congress as a social democratic Party firmly believes that the strength of an economy is in the quality and quantity of its production of material goods, the quality and quantity of its work force and how the income derived from such production is distributed. While free enterprise should be encouraged to free up and utilize the competitive energies of all productive people, there must be safeguards and regulations to ensure that competition does not turn into corrupt speculation and exploitation of workers and consumers. This is the thrust of our economic and social philosophy.
8. To day we are seeing the US government feverishly intervening in the market to save America's mortgage, banks and insurance companies from the clutches of Wall Street. This is what the NRM government should be prepared to do to save our peasants and workers from the so called unregulated investors and smart businessmen, read conmen. In May 1969, UPC intervened in the market to save Uganda's interest, the world condemned UPC then and UPC was overthrown with the help of the British government of the day. Today, George Bush and Gordon Brown have realized that nationalization as a government intervention measure is a necessary action in their present circumstances to save the world collapsing economy. UPC has been vindicated.
9. The UPC calls upon the people of Uganda to examine the economic realities of our country and demand a return to proper economic management, away from excessive consumerism and unregulated credit that is bound to lead to economic ruin. Since the NRM government has demonstrated utter inability to change the economic course of this country, the UPC calls upon the people of Uganda to support it in its call for economic reform.

Monday, September 22, 2008

National Insurance Corporation

Haa finally NIC is bringing on its IPO, it starts in the first week of October 2008, 40% of the Government stake is going to be sold to the Public on the Uganda Securities Exchange. watch the next two weeks from now, HAVE YOU SAVED any money...?
will post the likely impact of NIC IPO on the other stocks.

Friday, September 19, 2008

The Power of Information in this Age or is it the Information Edge

Dear Kasigi,
Indeed information is power, did you read the New Vision Daily’s Editor’s Opinion on Friday 12th September 2008 about Uganda Clays ‘irrational’ buyers, where was the editor when after sacking Pike from NVL the share price appreciated 30/= each trading day from around 430/= to 2700/=???? Star Trader’s understanding of the market is that prices are moved by the forces of Demand and Supply- psychology affects either of the two: demand and supply.
Anyhow back to The Power of Information in this Age: well view the trading board Before and After Editor's Opinion.

Before: Closing deals on 11th September 2008: Uganda Clays Counter
After: Closing deals on the18th September 2008: Uganda Clays Counter

Well Information moves money: no doubt!
New Vision's editor's opinion has no doubt contributed to Market liquidity- Thanks NVL

Monday, September 15, 2008

Another reason why its good to buy an IPO and hold for the Long Term

Uganda Clays IPO
Your Return 0n Your Investment

Original Divestiture Program
Governed by the Public Enterprise Reform and Divestiture (PERD) Statute of 1993, UCL was listed in Class 4 of the Statute (whereby the Government of Uganda (GoU) is required to fully divest its interest in a company). A decision was made in November 1998 by the Divesture and Reform Implementation Committee (DRIC) (as established by the above PERD Statute) that 325,000 shares of the total 375,000 Government held shares were to be sold to the public, the balance of 50,000 was to be sold to the management and staff of UCL. GoU eventually allotted an additional 50,000 shares to the staff. The offer price to the public was UShs 4000 while the discounted price to staff was UShs 3850.

Had you purchased 1 share of Uganda Clays during the IPO offering at 4,000 Shilling that share would be currently worth 250,000 shillings
That one Share has split first by 10 and then again by 100 becoming 1000 shares

If you had purchased the 8 Shares you were entitled to during this year’s Rights Issue Offer
They would have cost you 21,200 Shillings

Those 8 Shares would have also split into 800 Shares

at today’s closing price of 250 per share (11th Sept. 2008) your 1800 Shares would be with 450,000

The Original investment of 4,000 shillings plus the additional 8 shares purchased f 21,200
you would now have 1800 shares wth 450,000 Shillings

Small Investors
1 Share - 450,000
10 Shares - 4,500,000
100 Shares - 45,000,000
1,000 Shares - 450,000,000

NSSF and Large Invests
10,000 Shares 4.5 Billon
100,000 Shares 45 Billion
1 Million Shares - 450 Billion

Current Shareholders
(As at July 31, 2008) As of Sept 1 2008
of 9 Million Shares 900 Million Shares
• National Social Security Fund–NSSF (30.59%) 2,753,100 275,310,000 Shares
• National Insurance Cpation—NIC (18.86%) 1,697,400 169,740,00 Shares
• Barclays Bank of Uganda Nominees (9.5%) 855,000 85,500,000 Shares
• Uganda Communications Employee
Contributy Pension Scheme - UCECPS (5.74%) 516,600 51,660,000 Shares
• Bank of Uganda Retirement Benefits Scheme (2.09%) 188,100 18,810,000 Shares
• 1,165 Other Shareholders (33.22%) (Small Invests) 2,989,800 298,980,000 Shares
*Note Sept 1, 2008 Shareholdings are based on the 1 to 100 Split of July 31, 2008 Shareholdings


Wednesday, September 10, 2008

Of: Kyabazinga, Split and Rights

Dear Kasigi

No doubt the Burial of Kyabazinga temporary halted the Uganda Clays Train, no trading on Monday as it was declared a public holiday to celebrate the life and times gentle giant,

Is it a train? I think so. Are people jumping on the Wagons? I think yes.

Is there going to be a band wagon effect? Why not- only that this train if well managed seems to be long (high growth potential company).

*Uganda Clays Stock has gained a staggering 104.54% in Four trading sessions after split: 110/= at split 225/= yesterday- welcome to the Risky Markets where returns… Related article below

Of Rights and Splits

Yesterday 9th September 2008 was to be very busy on Uganda’s Stock Market: with Baroda bank split shares Trading, New Vision Media House rights trading well Baroda traded 1000 shares closing at 600/= from split price of 556/=. New Vision presented an opposite trend to Baroda as there were outstanding offers; though it traded OK with 1080 shares exchanging hands at an average price of 1,935.18/= closing at 2,000/= (Sam Njuguna and Alex Mugabo watch out for the financials which are soon being released)

Tuesday, September 2, 2008

UCL vis-à-vis Trading Spread and Liquidity after Split

Was thinking about Uganda Clays Limited in the aftermath of its 2nd split on the 1st September 2008- and thought I would share with you guys (USE).

Accessibility & spread
In the recent past a trader ("investor") needed 1,000,000 ugx minimum to buy shares in this highly illiquid UCL stock, after split they shall need 10k (most likely 100k)!
If they come rushing for these shares, how r u gonna work the 30 shs spread?

Bill(also a regular at the mkt) & meself were deliberating on the psychology of UCL individual shareholders in relation to them selling: then at the AGM that year (I think 2006) we did separate observations which included:
-Most shareholders above 40yrs
-Conservative and very cautious in nature: dress, speak….
-majority were professionals at the time of IPO in 2000, who probably could comprehend
issues regarding stock mkts since they were exposed to them in say academics
-these observations were for only the individual shareholders, and they typify investors (buy for very long time unlike traders).

There is lots of small monies 100-800 Ks that is eagerly awaiting for a chance to get a stake of this crown jewel (I think it is the jewel amongst all USE stock). This takes us back to:
If they come rushing for these shares, how r u gonna work the 30 shs spread?

Reasons why they could come rushing:
- UCL has 2 or 3 more major announcements: Acquisition, commissioning at
- Re-branding of Co: new logo, regional outlook, They are re-born so to speak.

Gut feeling: Sooner than latter USE shall succumb to the % spread (like the brokers rightly complained), I mean 30 ugx spread applying to UCL at 11350 per share pre-split and UCL post split at 110 per share …… (?)

Liquidity : My foot
Atleast UCL has proved that there is no rhythm here in Kampala between: share splitting & Liquidity.
I think the best way to bring liquidity to UCL is to get the big boys (NSSF, Pension funds, Parent Cos…) to offload their shares on the market (unimaginable! haa) read Baroda.
Ironically after the split these same big boys shall come in to sweep any supply!*?

Gut feeling: for liquidity the market shall inevitably have to attract as many Speculators as it can- then we can talk of a Liquid Market.
Maybe also pre-IPO splitting so many shares can be on offer (eg if NIC were to offer a share 500ugx each, they could make them 10 instead at 50 ugx) coupled with preference to individual investors (which is the bedrock of speculators are).

WILL post split UCL price OVERTAKE SBU price? Your guess is as good as mine



Company: Safaricom
Country: Kenya
Sector: Telecommunications
Number of subscribers: 9,245,000
Market share: 80%
Shares Offered: 10,000,000,000

Domestic Pool: 6,500,000,000

Breakdown: Retail (me and you) 3,380,000,000
Qualified Investors (Regional NSSFs) 2,730,000,000
Authorised Safaricom Dealers 130,000,000
Employees 260,000,000

Value of share: 5.7 Kshs
IPO price:
5 Kshs
Earning Per Share: 0.362 Kshs
Price Earning Ratio: 13.81
Profits after tax: 12,010,431,000 Kshs
Dividend Payout: 3.33% of profits
Allocation Results: 30th May 2008
Refund date: 9th June 2008
Trading date: 9th June 2008

Currently there are roughly 1,100,000 trading accounts on the East African Stock Exchanges, that's below 2% of the region's population.
Safaricom has been an eagerly awaited stock, even by those who have never traded a listed share let alone partake in an IPO- Initial Public Offer.
WHAT IF 3,000,000 new Trading Accounts join the 1.1m existing accounts: at a minimum application of 2000 shares that would total to 8,200,000,000 shares compared to the 3,383,000,000 allocated to retail investors equalling 142.6% oversubscription.

In simple terms this would translate to 925 (inclusive of the 100 guaranteed incase of an oversubscription) shares on Pro rata or in proportional basis IF the above holds.
In lay terms pro rata is kind of ratio basis of share allocation.
Say, you are offered 1 share for every 5 applied for.

OR WHAT IF all the Safaricom network subscribers (9,245,000) apply for the minimum 2000 shares; and that's for Kenyans alone.

Exchange Rate: Application
Safaricom IPO is aiming to raise over $700m by the 23rd April 2008, but it would not come as a shock if $2b came in. Remember all this money will have to be exchanged to the Kenyan currency before sharing in the IPO.
This shall no doubt result into an ARTIFICIAL gain in the Kenyan shilling on other currencies.
WHAT IF, for the case of Uganda the rate is at Kshs 1 for UShs 28 buying (as some banks are already trading).

Exchange Rate: Refund

With all the excitement that has followed the Safaricom IPO, a refund is inevitable and no ONE
(in the industry) will tell you that at refund, just like at application, there will be an ARTIFICIAL-though this time loss in the Kenyan shilling vis-à-vis other currencies.
WHAT IF, for the case of Uganda the rate at refund is at Kshs 1 for UShs 22 selling (Banks shall use their own rates). Imagine!

Safaricom undoubtedly is massive, bringing to the market 10 billion shares where there existed 15 billions previously on the oldest Stock Exchange in the region.
A typical Star Trader shall by now be observing the impact of this obvious fact on their local Stock Exchange especially in the stock with regional shareholding. For instance, a Stanbic share has lost Shs25 (to 230) this week because many investors are selling off to plunge their funds into Safaricom despite the release of the bank's financial results; most likely this month.

The development though has brought some attraction to the Secondary Markets, with investors selling off part of their share-holdings to go for the "massacre" on the Safaricom IPO.
Good luck to all you investors,

For critiques and to receive the numerical breakdown of this WHAT IF scenario e-mail:

Muhimbise Andrew
+256 752 431064
Star Traders'
Inspiring the next generation of regional traders

The above Report appeared in the Red Pepper, Business Sense magazine, of Wedneaday 9th April 2008.