Uganda Stock Exchange Annual Results Special

Its been the results reporting season in Uganda and I took some time to obtain and review the financial results for 5 of the companies listed on the Uganda Stock Exchange (USE). Not the easiest process though we did get there in the end.

My only wish if for the Uganda Stock Exchange to post the financial results of each listed entity in their entirety as lots of information that is important to investors is lost or hoarded. Case in point, one has to look at the announcement provided by the USE for BATU results. (See http://www.use.or.ug/inner.php?cat=news&sid=306).

STANBIC BANK UGANDA LIMITED (SBUL)
Date of release : March 2009
· Customer deposits have increased by 20% to UGX.1,289,674B (2007 = UGX.1,072,857B)
· Loans and advances also increased by 6% to UGX.108,722B (2007 = UGX102,335B)
· Profit after tax at UGX.78,550B rose by 48% (2007 = UGX 53,017BN)
· Earnings per share up by 48% and growth in shareholders funds by 40%.
· A Dividend pay out of UGX.5.86 per share (2007 = UGX 6.64 per share).

The key question for Stanbic was really why the dividend was reduced by 20% despite the 45% increase in Earnings per share. The MD suggested this was a precautionary measure which would possibly be re-reviewed at interim to assess the impact of the credit crunch on the Ugandan Banking landscape. There should be an interim dividend declared by Stanbic soon. Lets get ready to rumble.

Investor information quality

+ Excellent with respect to shareholder communications. For more o this, see Bankelele’s post here (http://bankelele.blogspot.com/2009/04/ugandan-envy.html)

DFCU LIMITED (DFCU)
Date of release : March 15 2009
· Customer deposits have increased by 56.45% to UGX.254.7B (2007 = UGX.163B)
· Loans and advances also increased by 23.19% to UGX.282.8B (2007 = UGX 229.5B)
· Profit after tax at UGX.13.1B rose by 54.17% (2007 = UGX 8.52BN)
· Earnings per share up by 49% and growth in shareholders funds by 19%.
· A Dividend pay out of UGX.21.13 per share (2007 = UGX 13.09 per share).
· Cost to Income ratio down by 20.55% from 73% to 58%

Investor information quality

+ Investor information section on the group’s website provides the required information. However should consider taking the Stanbic Uganda approach of email communication with shareholders

- Unlike in prior year’s the company did not post annual reports and relevant proxy forms. Wonder whether this had something to do with cost cutting?

BANK OF BARODA UGANDA LIMITED (BOBU)
Date of release : April 27 2009
· Customer deposits have increased by 23.43% to UGX.214,132M (2007 = UGX.173,477M)
· Loans and advances also increased by 31.03% to UGX.112,715M (2007 = UGX. 86,022M)
· Profit after tax increased by 24.73% to UGX.13,474M and earnings per share grew by 24.73%.
· A Dividend pay out of UGX.8.00 per share (2007 = UGX 7 per share)

Investor information

- No positives to report in this respect for this company.

- I find it difficult to understand this bank’s reporting. The outgoing MD KK Shukla provided unaudited figures for the bank’s performance as early as January 2009 to all the local press in separate interviews.

- Companies that release their results on the last day allowed by the Capital Markets Authority are always fishy. There is always lots of haggling, adjustments, changes and errors that are being exchanged between the auditors and management and ultimately the financial statements are always a product of forced consensus by both the auditors and management to avoid breach of CMA reporting rules. My advice: STAY AWAY FROM THEM UNTIL THEY GET THEIR ACT TOGETHER. The financial year ends on 31 December 2008 for goodness sake. You do not need 4 months to complete an external audit.


- BOBU has no website. Local investors are always referred to the Baroda India (parent company) website is irrelevant for investors on the Uganda Stock Exchange. Infact there is hardly any mention of Bank of Baroda Uganda on that website. I guess this is the same with all of those big banks Barclays, Standard Chartered etc Management should style up with respect to this.

BAT UUGANDA LIMITED (BATU)
Date of release : April 15 2009

· Sales have increased by 16% to UGX.185,865M (2007 = UGX.184,555M)
· Profit after tax decreased by 2% to UGX.3,244M (2007 = 6,140M).
· No dividend payout declared.
· EPS decreased by 11% from UGX125 to UGX 66.
· Total equity increased by 57% to UGX600M (2007=UGX -2,291M)
· Current liabilities increased by 80% to UGX 112,213M (2007 = UGX 90,841M)

Current PE is approximately 5 which is high given the recurring losses that BATU has been making over the year. It is worth noting that current year profitability was materially affected by foreign exchange fluctuations i.e appreciation of the dollar relative to the U shilling resulting in over UGX10bn worth of exchange losses. I would have liked to question the FD about the possibility of hedging but I won’t attend the AGM.

Investor information quality

+ BATU is the only USE listed company which provides minutes of the previous annual general meeting as part of the annual report pack sent to shareholders before the meeting which I feel is a big plus especially if one did not attend the prior AGM.

- Between last year’s (2007) and this year’s (2008) annual report, the company MD Serhat Eroglu, who we felt had done a great job somehow left the company. A new MD Ricardo Fonseca joined the company. However there is no mention of when Serhat Eroglu left and why throughout the entire annual report....Not even in the Corporate Information, Chairman’s report....NADA. Is this a slip????? So I ask myself whether he was fired, promoted, transferred. Not even in the local press was anything been mentioned over this.

- The BATU website is CRAP. This appears as www.batuganda.com on the back cover of the annual report. Management should style up with respect to this.


UGANDA CLAYS LIMITED (UCL)
Date of release : April 30 2009

The main business is the production and sale of building clay products in housing and construction, including; roofing tiles, bricks, blocks, decorative gilles, ventilators, floor tiles, pipes and cable covers.

UCL released an interesting set of results for the financial year ending 31 December 2008
· Sales have increased by 16% to UGX.13,548M (2007 = UGX.11,699M)
· Profit after tax increased by 2% to UGX.2,152M (2007 = 2,108M).
· No dividend payout declared.
· EPS decreased by 11% from UGX3.05 to UGX 2.7.
· Non current liabilities increased by 57% to UGX2.,351M (2007=UGX 12,993M)
· Net Current liabilities decreased by 80% to UGX 2,166M (2007 = UGX 10,657M)

Current PE is way in excess of 45 and I’m still reluctant to delve into this company.

It is clear that financing costs and loan repayments for the massive debt issued to fund the construction of a new factory in Kamonkoli have taken their toll on a once debt free company. While the debt itself is not bad, it remains to be seen if the debt has been put to good use . Only time will tell.

Investor information quality

+ Uganda Clays advised its shareholders that; Annual reports and audited financial statements would be posted to the shareholders on or before 30 June 2009 together with notice of the Annual general meeting to be held on Friday 24 July 2009 at Kamonkoli Mbale at 11.00am. This is a good chance for current shareholders to have a look around the new factory which is responsible for introducing mammoth levels of debt to the balance sheet of a once pristine company and gem in the formerly unknown rough of the Uganda Stock Exchange. I suppose such efforts are to be commended.

- However, the company needs to understand that only a few shareholders have the ability to travel from Kampala (or Entebbe for that matter- where the head offices of the company are situate – in the name of attending an annual general meeting.

- Naturally, the shareholders of the company, given the nascent stage of the bourse, will be grumbling about the lack of a dividend especially given that Uganda Clays has traditionally been one of the companies with the highest dividend yield 9before the splits and rights issues). In my view an AGM 5 districts away is a recipe for disaster but I will endeavour to attend if only to make heads or tail out of it.

- As an investor, I still have a problem with the company’s website. There is no investor information for the website. Someone needs to raise this at the AGM.

- Companies that release their results on the last day allowed by the Capital Markets Authority are always fishy. There is always lots of haggling, adjustments, changes and errors that are being exchanged between the auditors and management and the financial statements are always a product of forced consensus by both the auditors and management to avoid breach of CMA reporting rules. My advice: STAY AWAY FROM THEM UNTIL THEY GET THEIR ACT TOGETHER. The financial year ends on 31 December 2008 for goodness sake. You do not need 4 months to complete an external audit.


Elsewhere, I have now given up hope of participating in the NIC IPO (if it ever happens of course). I have negative affinity for melodrama associated with listings especially since Safaricom debacle. Investors end up paying top dollar for mediocre companies and valuations are never reasonable due to lots of hype.

Also Reuters reported that Uganda expects to sell its 49 percent stake in Kinyara Sugar Works in two years time, its 40 percent stake in the National Insurance Corporation (NIC) this year, its 31 percent in Uganda Telecom (UTL) in three to four years and its majority stake in the Sheraton Hotel within four years.

Value in Malawi - Get over Safaricom Kenya

.,,....................Rising inflation, rising interest rates, rising food prices....How far we've all come:

The performance of the various markets in 2008 doesn't tell so bad a picture compared to what's happening out there.

Nairobi Stock Exchange Loss - 18%
Uganda Stock Exchange Gain - 9%
Malawi Stock Exchange Gain - 15%
Botswana Stock Exchange Loss - 15%
Zambia Stock Exchange Gain- 18%

The much touted Safaricom turned out to be an excellent choice for speculators. Apparently, any one who managed to offload their meagre allocation within the first 2 months did manage at least 20% to 40% return. Since then, Safaricom has been playing only one role and that is to draw the NSE 20 index as low as it can get.

So I did some soul searching and realised that this IPO was merely meant to shed light on one of the key principles of value investing as preached by Warren Buffett. One of his key principles, and which he touts year after year in his letters to the shareholders of Berkshire Hathaway, only invest in companies you understand.

Seeing the value of Safaricom plummet to Kshs 4.6 or thereabouts, I did ask myself the following questions:
i) did I really understand the goings on in Safaricom (of course other than the basic airtime/telecom crap);
ii) did management of Safaricom provide all the information I would have needed to make an advised decision;
iii) did the company have comparative advantage in the long time?

At the time of the IPO, some of the answers to the above questions were positive.

Unfortunately, over time the answer to these questions have since become NAYs. Seeing the company engage in unending price wars, coupled with the fact that 'scarcity of the share' is almost non existent have convinced e that I would be uneasy if the market closed for 10 years with my funds invested in this company.

I have convinced myself that this was a mistake but its not the end of the world. We will be looking to exit this share as soon as it gets into positive territory. (Of course this is to uphold the No 1 rule of investing:-never lose money).

It is on the backdrop of this that I'm introducing the discovery of potential value identified in Malawi.

Apparently, the Telekom Networks Malawi Limited ("TNM") announced the commencement of its initial public offer for subscription of 1,290,450,000 ordinary shares of MK2.00 each from 7 October 2008 and closing 17 October 2008. Results of the IPO are expected on 28 October and listing on the Malawi Stock Exchange on 3 November 2008. The free float after this IPO will be 20%.

A couple of pointers caught my attention:
i) TNM expects to distribute between 40% to 60% in August and investors in this IPO will participate in the second interim dividend in December this year. I personally prefer to place a significant level of emphasis on the company's ability to declare and pay dividends because as we all know, the company requires cash to do this. Of course I reinvest my dividends as I so wish and thus enable the compounding effect to work its magic. With respect to TNM therefore, this will play an even bigger role in my investment decision because of the fact that Telecoms is a cash consuming (hence the presumed question mark)
ii) The company seems to understand the value of providing timely reporting and information the its various stakeholders.
iii) Currently one of two wireless network operators with competition from Zain.


As always, there are some negatives:
i) In the event of an over subscription, the shares will allotted at the sole discretion of the directors.
ii) EBITDA is growing but with reducing margins due to its aggressive marketing policy
iii) High operational risk due to rapid growth and development over a short time.
iv) Investors in Malawi need to be mindful of the restrictions with respect to funds restriction in Malawi. This is occasionally implemented by the government as part of monetary policy.

Naturally, if you wish to crunch the numbers, you're better off checking out the prospectus in detail as per the link highlighted above.

My take - Never miss out on a sub saharan IPO; and more especially not in these crunch times. Now, while this may sound like a positive review, the timing of the exit is what will determine any investors gains or losses........and using the lessons learnt from Safaricom, this is most definitely one for the short term.

DISCLAIMER: This blog does not constitute investment advice. Though utmost care has been taken while preparing this blog, I do not accept liability for investment decisions made as a result of this blog

Diamonds in the rough

It is official, 2 highly watched Kenyan banks are due to cross list on the Uganda Stock Exchange and several investors are wondering what the effect of this cross listing will be on their investments.

We do know that the cross-listing process will provide more sources of capital for KCB – hopefully even cheaper and will also play a part in improving knowledge of the 2 banks amongst investors.

In my experience, stock brokers in Uganda are reluctant to deal Kenyan stocks because of the associated exchange differences and the need to assure their clients that nothing fishy went. Usually they prefer that Ugandan clients deal with their forex differences and place their orders in Kenya Shillings which of course doesn't appeal to them.

Case in point are the already cross-listed stocks currently on the USE. Jubilee (JHL), East African Breweries Limited(EABL) and Kenya Airways Limited(KQ) are stocks to reckon with which have been delivering value for quite sometime now. (Don’t tell me that KQ has taken a pummelling recently).

See http://www.use.or.ug/inner.php?cat=trdstat&subcat=mktinfo

On the basis of the above, I would not foresee any significant changes in the banks share price at least in the short run. In as far as the key obstacle, which lies in the fact that the USE is not automated (still paper based), it will take sometime to realise any impact of the cross-listing.

There is also the problem of timing difference as the trades take some time to execute resulting in significant price losses/gains during the execution period. And after all the hullabaloo surrounding Safaricom, only the serious few like myself are really into this kind of thing.

Elsewhere, word has it that Uganda Clays shareholders have okayed a split which will reduce the share price from the current Ushs10,160 or whatever it shall be when the split is effected by Ushs100. Now as you may already know, this stock has been my secret gem in Uganda. I believe this is the best split yet.

Main Menu: Diamonds in the rough
Meanwhile, while snooping through Kenya, some gems appear to exist which are free riding into value territory while every one is focusing on Equity Bank and Safaricom Ltd.

BAT Kenya Limited and Total Kenya Ltd just unleashed brilliant results for the half year ended 30 June 2008. You’ll ask me, what’s so good about that?

I particularly love BAT Kenya because it is so in line with my core concept of value investing. Of course this one is not for you ethical investors. Don’t crucify me as at the moment, I do not own any shares in BAT Kenya. This may change any time.

Kenya recently implemented two changes which the naysayers will tell you should really do damage to BAT Kenya’s bottom line and ultimately their ability to deliver value in the long term.
Kenya recently introduced hybrid taxation in his 2008/09 budget, which they said was intended to improve the fairness of the taxation system. On top of this, one would ideally expect the ban on public smoking to also take effect. Additionally, there’s the line about illicit trading and smuggling of cigarettes.

It is generally well known that

i) the government can not do without the Ksh4,000M that BAT pays in taxes (both income and excise)
ii) the public smoking ban has been tried and tested in neighbouring Uganda and even the United Kingdom with interesting results.
iii) The market reacts and adapts to such legislation and other occurrences. After all, smoking is an addictive luxury. (Yes I said luxury). Or should it be utility???
iv) The biggest obstacle, in Africa, will naturally be the will to implement.

I do not intend to reproduce the numbers as these are already available in the public domain but suffice it to say that BAT is a stock that keeps on delivering value year on year and as with the key tenets of value investing, cash-flows and particularly dividends never lie. Honestly speaking, what’s wrong with this cash flow statement especially given that we all know equity markets are taking a beating the world over? PS focus on that cash flow statement.

http://www.nse.co.ke/newsite/pdf/Announcement%202008/BAT%20Half%20Year%202008.pdf

Yes operations generated less cash than we would expect.

We must note with respect to BAT Kenya, that the dividend yield is not necessarily based on special events or payouts. As a result, there is every expectation that the company will keep up on its dividend payments

As I have always believed and blogged. stocks which provide a high dividend yield will almost always provide a lot more value (in the long run of course) in comparison to other stocks and even the entire market.

Various investors in search of value without the same degree of volatility associated with growth stocks. BAT Kenya has consistently provided an income of 8% or more plus capital appreciation.
And the icing on the cake is that the company has positive earnings growth and the volatility/risk associated with certain stocks especially on the NSE is avoided.

I definitely expect BAT Kenya to keep on improving on these dividends in order to maintain the yield as the share price increases.

As for TOTAL Kenya Ltd, I’ll let the numbers do the talking:

Share price: Ksh 30 - Ksh 33 (rounded)
PE Ratio: 10
EPS: 3
DPS: 2.5
Yield: 8%

Again, the naysayers go on and on about inability to pass on the increases in the oil price to consumers. However I say that this applies to the entire oligopolistic market. Someone somewhere in the industry has got to rise above the rest. I believe this will be TOTAL simply because they have demonstrated over the years, that management have what it takes to keep on delivering value over the years through managing inventory, transportation and keeping financing costs to a minimum. Otherwise, the sustainability of these sumptuous dividend payments would not be possible.

Wish list
i) If only Uganda’s parliament would pass the electronic trading bill, relevant parties sign the dotted line and electronic trading is realised in East Africa
ii) Dare Salaam financial markets were liberalised and foreign exchange controls relaxed


New Vision Rights Issue: How to Participate.
Shareholders: To participate in the Rights Issue, you will need to fill out a Provisional Allotment form and together with the payment (to be made to Standard Chartered Bank Uganda– the Receiving Bank) send your form to an authorized broker.

New Investors: Rights are currently trading on the USE at Ush500 ($0.25)
In both cases, do contact a broker of your choice to help you with the whole transaction. (page 80 of the Investors Memorandum has a list of all the authorized brokers).
For more info, please see:http://www.enteruganda.com/brochures/nvrightsissue.html

DISCLAIMER: This blog does not constitute investment advice. Though utmost care has been taken while preparing this blog, I do not accept liability for investment decisions made as a result of this blog