Wednesday, July 6, 2011

Star Traders’ Monthly Briefs: JUNE 2011

1. Stock Brokers’ Capital Guarantee up 150%- welcome to The Animal Farm
The Uganda Securities Exchange in the month of June 2011 increased the Capital Guarantee from 40m (UDS 16,000) to 100m (UDS 40,000).
Capital Guarantee is the money the Stock Broking firms deposit on the USE account as a guarantee in the event.
Star Traders’ views this self regulation strategy not as a way of protecting investors as the Stock Market wants us to believe- BUT as a strategy of ring fencing the brokerage business
Was chatting with a Stock Brokerage business owner he said “The market can only handle 4 brokerage firms yet currently we have 8 active brokerage firms- we are saturated” I argued to him that that such radical regressive measures tending to the glass half full mentality only work towards maintaining the status quo and stifling innovation
Of course from his side there is an advantage of blocking out/delaying competition (smaller firms intending to join the Brokerage business will find it difficult to put aside USD 40,000 which could be a massive challenge to their working capital requirements)
The existing Brokerage firms will instead fight a small and stagnant pie (like NSSF and new pension firms market) and not push to have more independent IPO’s (IPO detached from the government’s Privatisation policy that is currently responsible for all primary listings at the Uganda Stock Market)- they will not aim a deepening the market reach to rightly position it as a platform of cheap and available Capital to growing Small and Medium Enterprises with additional benefits of Corporate Governance and continued capital source through rights and bonus issues

Star Traders’ Take:
THIS IS VERY MYOPIC OF THE USE Management, Lets learn from the innovation brought in by competition in the Telecoms industry where in 1997 it was though Uganda had a maximum clients base of 4,000 people yet today 2011 Uganda has close to 15,000,000 millions mobile phones; on the Stock Market we around 25,000 individual investors.
CAPITAL MARKETS AUTHORITY SHOULD CHECK THIS OUT, the Market is not there for a select number of Brokers! The industry needs reasons to penetrate both the population and Companies that need Capital- it is the only way to grow in-depth and quality just like it happened in Vietnam.

Lighter Note: As a way of enforcing this new requirement Stock Brokers from the Brokerage companies that had not as yet deposited the 100m on the USE account were physically barred from trading in the month of June 2011.

2. DFCU: 60% holding transfer

Listed in October 2004 at an IPO price of 230/= per share and is now trading at 1,000/= per share; DFCU has a fixed dividends policy of paying out 40% of net profit in dividends.
DFCU Background
dfcu was established in 1964 as a development finance institution. Over the years dfcu has been associated with many success stories in Uganda’s economy in various sectors: transport, education, floriculture, agriculture,manufacturing and agro-processing. In 2000, the company bought Gold Trust Bank and startedcommercial banking and renamed it dfcu Bank. Today dfcu Bank is a fast growing commercial bank offering a variety of innovative products and services:

“Actis, a British investments company and majority shareholder (editor: representing the CDC Investments) in Dfcu Limited plans to sell a major stake in the bank to its managers Daily Monitor has learnt. Actis which is part of the Commonwealth Development Corporation owns 60 per cent of Dfcu. The CDC is the United Kingdom's development finance institution.”
Full article: Actis to Sell major stake in DFCU Bank

Star Traders’ Take:
Initially the information I had pointed to the Uganda’s NSSF plan to acquire the 60% holding, maybe the Actis Managers are moving towards that. It makes sense that NSSF takes this stake as it positions herself for the Liberalised pension sector, I have my reservations on interfearence in Management in the event NSSF buys out Actis; but hey lets wait and see

3. Probable IPO: Uganda Finance Trust Limited (MDI)
Uganda Finance Trust Ltd MDI (Finance Trust) is one of the oldest Microfinance Institutions in Uganda having started its operations in 1984. The company is licensed and regulated by Bank of Uganda as a Micro Deposit Taking Institution (MDI) and is recognized as a key player and part of Uganda’s formal financial sector.

The company has one of the largest branch networks in Uganda with 28 interconnected branches strategically positioned all over the country and serves over 140,000 customers with a variety of savings and loan solutions including business loans, salary loans, school fees loans, savings accounts, fixed deposits and a money transfer service through Western Union Money Transfer.
The company has a diversity of shareholders mixing both local and international players i.e. OikoCredit from the Netherlands, I&P from France in addition to UWFT (a local NGO), a group of Prominent Ugandan women entrepreneurs (founder members) and others.

Star Traders’ Take:
If all goes well this will be the First Company to have a Primary Listing on the Uganda Stock Market outside the government’s Privatisation policy. I believe the Listing is aimed at Capital accumulation to move up the Financial Sector Tiers probably to a fully fledged Bank in the not so far future.

Star Traders'- THINK SHARES