New Vision Rights Issue

Elligible participants: all on register at 26th June 2008
Share begin trading on 8th Sept


25,500,000 shares at 1,100
1 new share for every 2 held

current share price 2510.

Should be a good deal for holders ...

For a discussion about rights issues please see wikipedia or nairobist

UPDATE: 29.1 Billion raised. Government opted out of rights issue reducing its holding from 80% to 53%.

Rogue broker at Uganda Securities Exchange ?

Sadly, we now apparently have rogue stock brokers in Kampala.

Be careful that you check that the right number of shares you ordered were bought/ sold at the price you specified; or at least the price as on the day of trading. This information is available from the USE website.

The USE suspened the rogue broker and CMA has made a public statement indicating that it will review the USE decision.

Information on this story is available here

Uganda Clays to split stock again

Uganda Clays is considering a second stock split , shareholders were undecided on wheather to have
a 1:100 or 1:1000 split !
Finally by a small margn, the 1:100 camp won out.

Get ready for a crash coming soon to this counter this year or next ...

One statement in there that I found interesting was
"But some investors are reportedly opposed to the share split because of its feared impact on their share portfolio."

Another interesting one is from the general manager of dyer and blair (stock broker)
" the share split ought to be subjected to a 10-to-1 ratio but much earlier than next year, to guarantee effective results"

Can anyone venture to state what these mean?

reference:
http://www.nationmedia.com/EastAfrican/current/Business/biz160620084.htm

The good, the bad and the ugly

Lets assume you have found a way to discern the ranking of the various stocks trading on an exchange.

Lets take the Uganda Securities Exchange as an example.

So the hard work is done, you have valued all the companies on the exchange and given them a
ranking from 1 to say 6. (ok, there are more on the USE but 3 of them have never really traded in years so
we wont include them).

Lets divide them into three neat piles:
1. the ones we need to buy
2. the ones we dont need to buy or which if we have we dont need to sell.
3. the ones that must be sold.

How do we group them into the relevant piles?

Do I hear someone call for a normal distribution? Any mathematicians out there? No?
Ok, lets look to a simpler method.

What marks out of 100 would you need to get as an investor to be really good at what you do?
We know that stock market indexes get an average of about 50% because by defination they are averages yet most investors and scholars agree that indexes are actually quite good. So we know that anything north of 50% is quite good. Lets aim high, lets say 80% is what works for us. This means we only pick the top 20% of the pool.
So far so good.

The bad ... Lets see... say anything better than average we can hold. This means we hold anything else in the top 50%.

The ugly.
Anything worse than average we sell !

In practise with 6 stocks on the exchange.
Buy 1.2 stocks ie the first one
Hold the next two stocks
Sell the last three

So there you have it!
The good, the bad and the ugly !

Mutual Fund/Unit Trusts/Collective Investment Schemes Investing in Uganda

This has been possible for quite a while.

Currently the only funds running are from African Alliance, but this does not mean they only invest
in companies on the USE, or the various bonds and bills in the country.

Some years back upon inquiring where they invest, I was told that information is only available to fund
investors. (yeah, chicken and egg, but I guess you can put in alittle and wait for the annual report!)

They have the following funds:
Fund
Balanced Income Fund (Initial Fee 5%)
High Yield Fund (2.5%)
Uganda Money Fund (?)

Contrast this with investment in individual stock were the commission is 2%.

Uganda Budget Financial Year 2008/2009

Was delivered yesterday.

Updates are at http://www.finance.go.ug or mores specifically at
http://www.finance.go.ug/budgets_background.php

These include the budget itself as well as a document with a background to the budget.

Budgets for previous years can be seen at the site.

There is no tax relief for companies listed on the exchange.

Privatised Unlisted companies to be sued

The following companies were to have offered to the public at least 10-20% of their holdings.

1. Uganda Telecom Limited. (lead advisor Data Bank Consortium)
2. Lake Victoria Hotel.
3. Apollo Hotel
4. Barclays Bank
5. Tororo Cement Works
6. National Insurance Corporation
7. Kakira Sugar Works
8. Kinyara Sugar
9. Uganda Grain Milling (now insolvent)

This would raise the number of local listed companies from 6 to 15.

The director of the privatisation unit has asked the solicitor general to seek legal redress
to ensure that these companies list according to the east african.

I wonder how this will proceed.

With the budget coming up in a couple of weeks or less, the best way forward would be to give tax incentives
to companies that list on the exchange.

Bank of Baroda Share Split

10 for 1 share split approved for BOBU.

The counter has been slowly growing by 30/= the maximum increment each trading
day. Shares for purchase at this counter have been scarce.

There is every indication the liquidity on this counter will increase after the split (because it is unlikely
to grow at 3/= per trading day after the split). I look forward to reaping the benefits of this!

Government Treasury Bill vs Equties

Having looked at the articles at
http://www.bdafrica.com/index.php?option=com_content&task=view&id=7932&Itemid=5812
and a response at
http://mjengakenya.blogspot.com/2008/06/bonds-vs-equity.html

When you buy stock, you pay a premium over current value of the stock you are buying.

This is because you factor in growth and future earnings.

There are many ways to value a stock for example.
1. P/E ratio - where you read tea leaves and guess where the stock will be one year (or many years) from now.
2. Discounted Cashflows - similar to 1. you guess where the market will be in the future
3. P/B - where you value a company basing on where it is now and how fast it has grown to date.

Most people believe 3. does not hold for new age stocks which do not have tangible assets but instead hold
intagibles.

I have done a comparison of treasury bills (1yr) and two stocks on the Ugandan exchange using the P/E
method

Here is the information we will use:
1 yr tbill gives 12% return
UCL gives 13% return on equity historically and has a P/E of 44
BOBU gives 23% ROE and has P/E of 15

in the first year since we pay a premium for buying the stock the earnings yield is 1 / PE
for UCL it is 2.3% and BOBU 6.7%

so we have the following table for increase in values for 4 years for tbills and 2 stocks

tbill 1.14 1.14 1.14 1.14
ucl 1.023 1.13 1.13 1.13
bobu 1.067 1. 23 1.23 1.23 1.23

After 2 years, bobu will have passed tbills.
After 5 years the growth would be as follows:
bobu 144%
tbills 76%
ucl 67%

will have grown to twice the tbills but ucl will not have caught up with tbills !

Now the price on the market might not reflect these underlying values but if one waits a while
the market will correct itself to these values.

Tbills beat over valued stocks. This means that on the basis of P/E and ROE one can determine
which stocks are unlikely to beat tbills in the long run.

Probably a better metric is to use the average earnings over the past 3 years than to use a forward
earnings.

I will go with Miss Kigen on this one!

One mans visit to the Ugandan Stock exchange

I have just read with interest a reporters view of the stock market. The reporter was writing a story for
businessweek.

He highlights that most trades are done just minutes to the closing bell with the rest of the time spent
waiting for other brokers to make better offers.

It will be interesting to see how this changes when the exchange moves to electronic trading.

You can find the full picture here