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
Impact
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)
HOW
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)
Background
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.
Website: http://www.financetrust.co.ug

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

Stanbic hits 350/= per share

On the last day of its Bonus trade, Stanbic bank shares touched a high of 350/= a share, a 30% price gain compared to average trade price of 270 over last Two months, a record price since it IPO listing at 70/= per share at the beginning of 2007. The price has settled in the 330/= per share zone in today's trading.

Bonus Books Closure and Price discovery
It will be interesting to see what the price will be between the Stock Market Bonus book closure date (Today 10/06/11) and the Stanbic Bank Limited Bonus book Closure date due on the 17th June 2011. Reason being- You Sale and Buy without Bonus AND at what price??????

Hindsight
for Baroda Bank in the same situation recentlty there was a deadlock- NO SHARES EXCHANGED HANDS, in this lacuna period, LETS SEE WHAT THE BROKERS BRING THIS TIME CONSIDERING STANBIC IS THE MOST LIQUID STOCK IN UGANDA.

WILL BE WATCHING THE BROKERS ACTIONS KEENLY

Star Traders' expects Stanbic to trade between 180-210 shillings per share after bonus shares start trading on the 20th June 2011.


Update- 17th June 2011
Well as usual CFS (Crane Financial Services) played its role as the brokers trend setter by trading 200 shares worth 40,000 Ugx (approx- 16 yes 16* USD) so to speak they tasted the waters in this lacuna period! below is a record of trade.
* 1USD = 2,415 Ugx

Date Number of shares traded Turnover Average price
13th June 2011 200 40,000 200
14th June 2011 20,694 3,517,980 170
15th June 2011 734 124,780 170
16th June 2011 143,012 24,246,980 170
17th June 2011 1,805 306,850 170
source- USE market reports, 13-17 June 2011


INVESTOR ALERT- pro-Investor communique
"Prepare Yourself
Only shareholders with a Securities Central Depository (SCD) account shall be able to receive the bonus shares. It is expected that the bonus shares shall be deposited into the SCD accounts of shareholders within the next 60-90 days. If you have Stanbic Bank paper share certificates but have not yet opened an SCD account, contact Crested Stocks and Securities immediately for action.
Withholding Tax
The bonus shares may attract a charge of withholding tax to shareholders. As this issue is still unresolved we shall provide our clients with details once Stanbic announces the way forward.
Effect of Bonus on Market Price
The U.S.E. book closure date was 10th June therefore the share is trading ex-bonus (in other words, the shares trading now will not qualify for the bonus). This week SBU has traded in the range of 165 – 200 Ush per share. This is the equivalent of a pre-bonus range of 330 – 400 Ush. We advise clients that the price discovery process for SBU is ongoing and to contact us with specific questions about the current pricing.
Our offices are located at Impala Hse 6th Floor, Kimathi Avenue Tel. 0414230900 or Email. info@crestedsecurities.com. Open: Mon-Fri 8:30 to 6:00pm and Saturdays 9:00am to 1:00pm." Crested Stock Securities Kampala's Investor Alert on Stanbic Bonus
Star Traders' appreciates Crested leadership role in Investor Education, thanks CSS.

Star Traders' Take!
It is very clear we are in an information age those who seize the opportunity gain! it has not helped that Stanbic to-date has not started on the process that will bring the bonus issues on the market, we are now TRADING IN SHARES WITHOUT THE BONUS AROUND IN REAL TERMS YET THE PSYCHOLOGY OF LEADING US TO TRADE OR BUY HAS THE BONUS SHARES IN MIND. Not many Investors can fully comprehend this (took me sometime as well) whereas some are bound to gain (SELLERS) others will definitely lose (BUYERS) imagine the bonus shares may come on the market earliest September 2011.
Uganda Securities Exchage, Brokers and the Capital Markets Authority of Uganda WE CAN SURELY DO BETTER THIS IS OUR MARKET ALL- GUARD IT.

N.I.C May 2011-Suspension (17 July 2011)

WHEN IS THE NATIONAL INSURANCE CORPORATION RELEASING HER FINANCIALS AS AT YEAR END 2010?

After the departure of Makerere's DAP scheme is there a dividend??????????

You cannot blame one for calling it the Nigerian Insurance Corporation! watch out in your national press.........


Update- 17th June 2011
As per your national press
In Today's Uganda daily Monitor newspaper page 13 NIC has released a press statement (PUBLIC NOTICE) explaining the delayed release of 2010 Financials stating the reason as Approval from the Uganda Insurance Commission before they can do so.

Very interesting angle if you ask me! reason there is a clear difference between an External Auditor and Regulator.

Is NIC finding it hard as a listed Company? recent management changes, bad press from Makerere pension scheme or sheer internal disorganisation?

Update- 18th July 2011
The NIC counter has been suspended following its failure to release their FY10 results before the deadline of yesterday. NIC is the first counter to be suspended in the history of the 13 year old stock market.

Star Traders' Take
This suspension is not good for market confidence; this NIC problem is more than release of 2010 financials, you just need to read what could be boiling under...DAP Makerere Scheme,one of the items i prioritised in Star Traders' NIC IPO Analysis back in january 2010, can read it by clicking the Link.

BEYOND THE ORDINARY EYE

Makerere University staff threaten strike over savings
The above Daily Monitor Link tells you a bigger part of the story everyone in the industry doesn't want to admit,
quote extract
"The report dated July 6 and titled, “Verification of the Makerere University deposit administration pension scheme managed by NIC, indicates that NIC owes Makerere University Shs22.3 billion.

Conducted by PriceWaterHouseCoopers (PWC), the report, signed by the Auditor General, Mr John Muwanga, shows that the value of the DAP fund as of August 2010 is estimated at Shs22.5 billion in respect to the existing members and Shs4.4 billion to members who left the scheme."
For me this summarises the pressure and tension the NIC management and Directors could be tackling, RECALL the MAkerere DAP scheme stood at around 30% of NIC balance sheet and abruptly losing such a client can strain a company to unimaginable risk involving forced liquidation and other intangibles like trust- all this is not helped by the fact that the majority shareholder is NIGERIAN- wowhhh!!

Investment Clubs: The Ugandan Rats Story

Author: Paul

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.'

How they started

Amazingly enough, the Rats Network Savings and Investment Group idea came to life when two groups of like minded school leavers of Makerere College School and Gombe Secondary school met at Makerere University Business School for their university education. At the university these two diverse groups found themselves playing the Cashflow Quadrant Board Game (invented by the Rich Dad Poor Dad author Robert Kiyosaki) at Akamai Global. After occasionally getting stuck in the ‘Rat Race' they gradually realized that solo/lone investments had limits of progress. In the game, a successful player ‘jumps out' of the ‘Rat Race' into the ‘Fast Track' where he or she joins the world of financial freedom. They therefore thought it wise to jump out of their ‘Rat Race' strategically by organizing themselves into an investment club and tap into the strength of numbers. In January 2008, RNIG effectively started as a savings and investments club and on 14thSeptember 2009, RNIG's holding company Melrah Investments Ltd was incorporated with each member owning equal shares. This was a major stride as it implies that each Rat's liability to the club's debts is limited to his or her worth of shares. Andrew Muhimbise, the group's Assistant General Manager, recommends that organization in such a club is quite critical. The Rats are therefore organized into three investment units; Capital ventures, Securities and Credit as well as Property and Real Estate.

The ‘Rats' at work

A Rat saves Ugsh. 50, 000 a month. What would be their combined 5 - year saving based on a membership of 20? Ugsh.60 Million I guess. How many of us the youth can save that on an average income given the high standard of living in Uganda today? Currently, their monthly inflows are averaging Ugsh.650, 000 a month. With their strategic intent being to rival the renowned NSSF in portfolio holdings, they saw their annual collections in 2008 amount to Ugsh. 3,650,000. In 2009, this shot up by 27.2% and in 2010 annual inflows amounted to Ugsh. 16,270,000. The Rats attribute this consistency to accountability and trust among the members. Over the past two years, the Rats have managed to invest at the Uganda Securities Exchange, Equities division with their stock picks being; Stanbic, DFCU, Uganda Clays, NIC and New Vision. The above have been generating some worthwhile dividends for the club. On their list too is a short term investment with Golden Bees Ltd, a honey processing and packaging private company. Beside that, the group is currently in the process of acquiring a 20 acre parcel of Land in Mukono District, 42 km from Kampala where they plan to engage in group farming. Borrowing a leaf from the Bugisu Co – operative Union, the Rats major mentors, they believe group farming will give them a competitive edge.

Your choice…

The Rats slogan is ‘better together'. True to their slogan they are on a journey to achieving their ultimate vision of financial freedom collectively. All the Rats have attested to the fact that there is strength in numbers. You have two choices; either form a club or join an existing one. You are likely to benefit from a cushion against risk if you are the kind that is terrified to invest. Moreover, it will be a chance for you to guide your own personal investing, the club has done so why not parallel your investments as well? On the other hand, your membership will come with a number of challenges. The Rats recommend that if you are to form an investment club, at least avoid personal disagreements which most likely sprout out of romantic relationships gone sour. Hence bar members from admitting their girl/boyfriends but only for committed spouses or partners. The Rats also point out that you should endeavor to look out for individuals from different career backgrounds. What will happen if you admit only lawyers to your group? Every one will want to give an opinion all through. You will lack executors! Do you think you have much of a choice? I vehemently don't. If you think you do, then read about The TransCentury Group in Kenya. The good news is that if you decide to form an investment club today, the Rats will be more than willing to mentor your club.

Article Source: http://www.articlesbase.com/investing-articles/investment-clubs-the-ugandan-rats-story-4768715.html

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Article Summary:
The Rats Network Savings and Investment Group 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.'

Interested call: +256 712 807627, Rats Chairperson.