Bank of Baroda Uganda: How conservative can a listed company get?

I managed to get my hands on a summary of the abridged (and I really mean abridged) financials of Bank of Baroda Uganda Limited which is listed on the Uganda Stock Exchange. The main changes were that Interest income increased to Ushs 25,181,793,000 from Ushs 19,322,580,000 (30%), Interest expense increased to Ushs 8,368,683,000 from Ushs 4,875,075,300 (72%), Net interest income was Ushs 16,813,110,000 from Ushs 14,447,504,700(16% growth), None interest income increased to Ushs 5,385,547,000 from Ushs 4,091,285,000 (32%), Impairment losses decreased to Ushs 30,283,000 from Ushs 47,811,000 (37%) moreover with the net non performing assets being nil, Non interest expenses increased to Ushs 8,403,502,000 from Ushs 7,567,427,000.

As I was reading this, I was like hmmmm, as expected the results were in deeply positive territory (at least compared to other competitiors such as DFCU. I use DFCU because this is Baroda's ilk. Profit after tax grew to Ushs 10,802,466,000 from Ushs 8,021,827,000 (35%)resulting in an increase in Earnings per share from 201 to 270. these positive results really eased the company's PE ratio, which was still impressive at about 17 to about 13 which would suggest that there's lots of value to uncovered.

Lo and behold, the dividend per share remained stubbornly static at a paltry Ushs 70. Now, don't get me wrong. I do believe in long term investments especially where stocks in our economies are concerned but hello, the characteristics of a good stock must include dividend payouts that resonate with the company's performance and results. As a result, the company's dividend yield is 70/3,640 =0.0192 or 2%.

We all know that as investors, we consider higher dividend yields as evidence that a stock is under priced or that the company has fallen on hard times and future dividends will not be as high as previous ones. And yes the increasing emphasis on price appreciation over dividends as the main form of return on investments may lead us to decide otherwise when analysing investments. But for the sake of investments, please, pay some dividends to the shareholders. At this point, I'm tempted to ask (albeit a bit prematurely) whether the bank may be having cashflow problems which question in itself sounds folly.

Looking at the ownership of the bank, institutional shareholders, as opposed to individuals, hold significant chunks of the the bank. Because these tend to primarily be long term investors, they do not necessarily analyse the financial performance of some of these entities regularly. The negative impact of this practice is such that the share prices for some of these stocks are no longer (if they have even ever been) driven by fundamentals but rather by the simple principal of demand and supply.

Before anyone crucifies me on this, prudent financial management dictates that persistent historic low dividend yields are indicative of markets that are still overvalued. Are we there yet????


Not really sure about this but I believe listed companies are supposed/required to publish results annually or semi annually or even quarterly. Why on earth don't we get to see the quarterly financial statements of companies on the Uganda Stock Exchange??? We do see them published by Kenyan companies on the Nairobi Stock Exchange. Moreover if my broker had not availed these numbers, we would not have had access to them. This defeats the efficient markets hypothesis crap that we've been learning in our financial management lessons. The Uganda Securities Exchange needs to style. And with all the growth in these nascent markets, you'd expect that the institutional investors would really rally in favour of this but no they don't.

A first time investor singled out the Nairobi Stock Exchange in particular and asked me which were viable companies that would generate a decent return on his investment. Now, of course as we do know the Kenyan Stock Exchange is one of the most robust in our chosen sphere of investment. Given that it currently has over 6 sectors (including the alternative investment market segment) the question would require serious consideration lest one's fingers get burned.

As explained above, I would personally favour, stocks which have a high dividend yield, low Price earnings ratio and increasing positive cashflow. this doesn't mean that one's portfolio should be full weighing up stocks that, on the face of it, look cheap but have a higher risk of downgrades in future. Similar thing happened with BAT Uganda in 2003 and 2004.

On a lighter note, a fund manager of an investment fund in which my peanuts were invested returned really poor results for the last month or so and blamed it on the market. Now I really have a problem with these professionals....and he had the guts to state that over the longer term, they were increasingly of the view that value is emerging in the sector. In my understanding, I believe timing the market is the key. There is no point in long term view if the timing in the market is wrong. An investor who entered the market at the trough of the credit crunch would have made a killing in the FTSE now or an investor who invested in Kenyan stocks on 31 December 2007 would be laughing all the way to the bank now. I'm taking my fund manager's commentary with a pinch of salt.