In mid 2008, I visited one of the top broker-dealers in town.
I wanted aice on which listed company on the Uganda Securities Exchange I could buy into.
The broker-dealer recommended Bank of Baroda. He told me Baroda had undertaken a conservative and cautious approach that guaranteed its share price would go up gradually.
I was not convinced. I wasn’t interested in anything conservative I wanted some action, a company that was onto something vibrant and exciting.
Vision group, the publishers of New Vision, was my company of choice.
Around that time, Vision was planning to set up radio and television stations, as the company looked to grow into a media empire such as Kenya’s Nation Media group, the owners of Monitor Publications.
And, well, since the New Vision had government backing, I thought it was bound to hold an upper hand against its competitors, such as my own paper, The Observer, for a long time. The broker-dealer did not look convinced when I told him my arguments.
Anyway, I had already made up my mind. So, I picked up a few forms, paid money, with a share going for about Shs 2,300 or thereabout. So, right there and then, I became a shareholder in the Vision group. I still am.
But as I look back now, with Vision’s share price floundering around the Shs 600 mark, its profit dropping annually, and its struggles with high operation costs, I cannot help it but feel a deep sense of despair.
How did the Vision share price, which attracted so much demand in the first three and a half years after its listing, get to this point, where hardly anyone wants to take a look at it?
It’s hard to tell. William Pike, the former managing director, had earlier said that the New Vision’s biggest challenge was its digital platform, where more people had turned to reading the paper online rather than buying a copy. It was not a surprise that the company decided to charge subscription for some of its online content.
The challenges persisted. Now when I look at it critically, I think the other bigger problem was the company’s delicate position, where it has to balance state interests and shareholder demands. It is simple few companies, if any, can balance the interests of private shareholders and the state, and especially where the shareholding between the two is almost equal.
Let’s face it, government and the private sector cannot get into business together. The two just do not mix. Government retains a 53 per cent stake in Vision group. It is very easy to see that perhaps Vision group has been on a massive expansion drive not just to grow the business but to widen government’s platform to send out its propaganda.
This reason is backed up by the quality of the assets that the Vision group has amassed over the years. While the different media platforms the company put up were expected to capture a wider market, the return on these investments has not generated the sort of revenue that can grow the company’s profit.
When it comes to making investment decisions, Vision group, to some extent, finds itself in the same dilemma as the National Social Security Fund – heavy state interference. NSSF can hardly make any investments without the ministry of Finance’s approval, which is usually too beauracratic for a fast-moving private sector.
Vision group has no choice but to restructure its assets. The group has to look at its assets and see which ones it has to shed off to reduce its operational costs. The question is whether Vision group can carry out that decision.
This is because such decisions are painful as they usually mean job cuts. There is the little detail of Uganda going to the polls in 2016, which means the ruling party will need all the platforms to send its message in order to retain the presidency.
The other easier option is a capital injection by government as it is the biggest shareholder. A capital injection, however, would simply be throwing good money after bad because Vision’s problem is not that it does not make enough revenues it does make quite some good money. It’s the costs that are an issue.
So, for now, Vision’s shareholders on the stock market continue to retain the stock, preferring to look long term, but also for fear of selling at a loss. Vision group has to come up with a better strategy to appease the interest of its shareholders. But for starters, government has to back off. Not that it will.
The author is the business editor at The Observer.
Source : The Observer