Balancing good times with good stocks

by Business Times writer
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If one were to get the true picture of how much Ugandans spend in the pursuit of ‘a good time’, between Friday evenings and early Monday mornings, it might cause one to exclaim: ‘Wow!’

Kampala is widely touted as the ‘Party Capital of East Africa’. But the manner in which we so easily part with this cash, rather than think about savings and investments, can also invite woe. 

Anyone who can comfortably ‘blow’ several hundred thousand shillings on instant gratification can also afford to become a retail investor on the Uganda Securities Exchange (USE). Boring and risky someone may suggest; nevertheless, food for thought.

Uganda needs to consistently grow the crucial measure for total savings as a percentage to GDP. This ratio spotlights our capacity to pay for the country’s infrastructure deficit and other public or private investments instead of relying on development partners, other donors and rattling begging bowls.

After long years of persistently low level of domestic savings, technocrats at the finance ministry were pleasantly surprised recently to record that Uganda’s savings ratio reached 19.2% during financial year 2021/22. This surpassed the projected target under the National Development Plan III of 16.8%. Compared to 3% in 1987 and 13% in 2015, this is an encouraging trend although economists insist 35% to 40% is the most ideal range.

When people save more, it enables the banks to lend more to firms for investment. Alternatively the stock market is place where the money you have put aside as investment capital works for you by potentially sharing in the profits of others.

According to the USE, one of the key functions of a stock exchange is to bring together in a centralised market place investors who provide capital and companies that require capital. Companies raise money by offering stock shares and corporate bonds and allow investors to participate in the financial achievements of the companies, make profits through capital gains, and earn income through dividends.

By developing capital markets, consultancy agency FSD Africa says, countries can facilitate the diversification of the financial sector, providing a useful complement to the banking sector or at times compete with it. Other times, these markets can, through risk sharing instruments, play a bigger role in new areas and offer the public and private sectors access to long-term financing which is frequently hard to come by.

At the present Uganda has 17 listed companies, including a significant number of cross-listed stocks, mainly from the Nairobi Securities Exchange. The current market USE capitalization or total value of all the listed stocks is about UGX 16 trillion. This is slightly less than what the National Social Security Fund (NSSF) has under its wings in the form of members’ savings and assets. By the way, NSSF is the leading institutional investor on the USE.

Oddly enough and a constant source of perplexity for the Capital Markets Authority, of the listed companies only Uganda Clays can be described as largely indigenous. Our bigger and mostly family-owned businesses continue to shun the USE. Preferring the confidentiality of dealing with banks rather than the regulatory scrutiny demanded of a listed company.

To tweak things up a bit, and for some time now, the government has been pestering the mobile telecom network providers, MTN Uganda and Airtel Uganda to partially open up ownership to local participation.

True, Uganda is a liberalized economy, but the sight of millions of dollars being annually carted off to foreign owners gets less appealing the more money is being made from the Ugandan consumer. Five years ago, during negotiations for extending operating licenses, the government, through the Uganda Communication Commission, hardened its stance. Soon afterwards, MTN announced a planned listing on the USE which eventually happened towards the end of 2021.

Now it’s the turn of Airtel Uganda. In an initial public offer (IPO) that opened on August 30 and ends October 13th, Airtel is inviting Ugandans to buy shares as it attempts to raise at least $200 million. Twenty percent of the company is being offered to the public amounting to eight billion shares at UGX100 each.

The company is a subsidiary of Airtel Africa with headquarters in London, and in turn this entity is majority-owned by Bharti Airtel based in New Delhi, India. As a sweetener, Airtel intends to declare a dividend in respect of the third quarter in November 2023. Those investors who are allocated and allotted shares on October 30, 2023 will be entitled to receive part of that dividend depending on their shareholding.

With about 14.5 million subscribers as of May 2023, Airtel Uganda believes the IPO will enhance the company’s profile across the continent and establish a source of future capital to support its extensive growth strategy. Along with its rival, MTN Uganda, Airtel Uganda is rolling out infrastructure to support 5G services. 

According to a general brief compiled by PwC Uganda, the financial services firm, ‘Regardless of what you know or do not know about investing in shares, and what you have heard from other people who have invested in shares in the past or what you have read on social media, the reality is that investing in shares is a personal choice. That choice depends on your financial situation, risk appetite, personal financial goals, and investment style’. 

It also depends on your character. If you have the self-discipline, fortitude, patience, inquisitiveness and a sense of imagination, investing in stocks can be rewarding. You learn to understand that the value of your shares can go up or down; that occasionally companies will not offer any dividends or you can lose everything in a crash. There are no certainties, but keeping your eyes and ears open and following up on as much information as you can get about you stocks portfolio is an important coping mechanism.

GSMA, the global lobby for the mobile telecom network companies, says by 2025, mobile’s contribution to Sub-Saharan Africa’s GDP will grow by $65 billion to almost $155 billion. GSMA also adds that by 2025, smart phones will account for 61% of total connections, on average.

Data consumption on the continent will nearly quadruple by 2027, but still continue to lag behind the global average by a wide margin. Average Revenue Per User (ARPU) growth is projected increase by 7.4 percent. ARPU is calculated by dividing the total revenue of the network by the number of users over the time period you want to measure, which could be a week, month, or year.

With a 47% market share, Airtel Uganda expects to generate nearly UGX1.9 trillion in revenues by the end of 2023 compared to UGX1.5 trillion in 2022 and pay out dividends of just over UGX500 billion, a rise of four percent from the previous year. The choice of partaking is strictly up to you, but remember– if you can’t afford to invest yet, don’t!

Sudhir Ruparelia, one of Uganda’s wealthiest individuals, is the single largest shareholder in Stanbic Bank Uganda Limited. At the beginning of April this year, the bank announced a total dividend payout of UGX235 billion for 2022. Although Sudhir’s shareholding is less than one percent, but more than half percent, he isn’t complaining. In varying degrees, and sometime in the future, you may also be in the same position.

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