Umeme share valuation hits an impressive Shs1 trillion

Kampala.

For at least nine months, the Umeme share price appeared to have run out of steam fluctuating between Shs450 and Shs503 per share.

However, in the last two weeks, the power distributor broke the Shs600 mark, trading at Shs692 before dropping to Shs615 at the end of trading on Tuesday.

This has also pushed the value of Umeme’s shares to Shs1 trillion, up from Shs512b when it listed back in December 2012. The utility company has received positive reviews from two investment banks Renaissance Capital and African Alliance, which explains the 120 per cent rise in the share price since 2012.

Renaissance Capital is projecting a price of about Shs1000 per share, up from the previous of Shs744 based on new assumptions that Umeme would see out its concession in 2025.

“After meeting Umeme management and seeing the company’s operations, we believe it would be a mistake for the Ugandan government to end Umeme’s concession early. The company is delivering on expectations for its investment programme the new equipment it is installing is state-of-the-art, customer connection rates are rising and grid losses are falling from year to year,” reads a report from Renaissance Capital seen by Daily Monitor.

Umeme’s concession runs out in 2025, and by that time, dividends will have grown by about 250 per cent, according to the report.

African Alliance in its East African Power Sector report published in July 2015, indicates Umeme will perform above the loss reduction target given by the regulator.

Mr Selestino Babungi, the chief executive officer Umeme, while speaking to the Daily Monitor recently, said the company had also tightened their internal controls so as to check fraud, which would increase their profitability.

He said by opening up to alternative payment channels, they were limiting the loss of money through cash offices.
“We have reduced loss from 40 per cent to 19 per cent, saving the sector 20 per cent which is about $70m. If this had not happened, tariff costs would have gone up by 30 percent to cover up the gap.

Umeme has for the last two weeks continued to dominate trading contributing at least 90 per cent of total turnover on the Uganda Securities Exchange. There are some risks to Umeme, which are mostly external the depreciation of the Uganda Shilling, delay in completion of Karuma and Karuma projects and the election period.

“We expect challenges ahead notably arising from uncertainties occasioned by the upcoming general election in early 2016. These might curtail Umeme’s sales growth due to industries cutting back on production in the run-up to the electioneering period,” the African Alliance report reads.