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Uncertainty surrounding Umeme Ltd’s power distribution agreement and foreign-investor flight hurt trading turnover on the Uganda Securities Exchange in 2018, while market players struggled with cost-cutting pressures and lower revenue forecasts, industry insiders say.

Latest data compiled by stockbrokerage firm Crested Capital Ltd shows that total USE turnover dropped to Ush43.64 billion ($11.7 million) in 2018, from Ush96.17 billion ($25.8 million) in 2017, signalling difficult times for market players who earn commissions from stock trading.

Some trading sessions recorded turnover levels below Ush500,000 ($134), even going to zero on one trading day, USE statistics show.

Gross market commission s stood at 2.1 per cent of the value of each trade. Stockbrokers earned 1.7 per cent, while the USE and Capital Markets Authority earn 0.14 per cent each.

The Investor Compensation Fund earns a commission of 0.02 per cent from each stock trade, while the Central Depository System Transaction levy stands at 0.08 per cent. The Guarantee Fund earns a commission of 0.02 per cent from each stock trade.

“Many stockbrokers are bound to register lower profits in 2018 compared with 2017 as a result of lower trading volumes,” said Simon Mwebaze, the general manager at UAP-Old Mutual Financial Services Uganda Ltd.

“For example, profit before tax posted by our stockbrokerage unit fell to roughly Ush35.4 million ($9,500) at the end of 2018, from Ush101 million ($27,105).”

Trading volumes
Total trading volumes declined to 584.93 million shares in 2018 from 680.22 million shares in 2017.

The All Share Index fell to 1,649.39 points from 1,962.39 points during the same period.

The USE’s total market capitalisation increased to Ush27.7 trillion ($7.4 billion) at the end of 2018, from an average of Ush22.5 trillion ($6.04 billion) in 2017, the data showed.
A memo from President Yoweri Museveni questioning the terms in Umeme’s concession agreement sent shivers down investors’ spines in April 2018. Equally, the US Federal Reserve’s decision to raise policy rates prompted some foreign investors to liquidate their assets in emerging markets for fear of incurring high borrowing costs.
These factors led to massive sell-offs among listed companies, dull trading activity in the last six months of 2018, falling share prices and a slight depreciation of the Uganda shilling, analysts said.
The Umeme counter accounted for 51.3 per cent of total market turnover last year, but contributed 10.13 per cent to overall trading volumes on the USE.

The electricity distribution company’s share price fluctuated in the range of Ush300 ($0.08)-Ush350 ($0.09), and fell by 21.95 per cent to Ush300 ($0.08) by the end of 2018.

In comparison, Stanbic Holdings Ltd generated the highest trading volumes, with a share of 82.9 per cent of total market volumes but contributed just 34.09 per cent to overall turnover.
Faced with a harsh business environment, the USE management shed three senior management roles last year in a bid to cut costs and remain afloat.


Those affected were the heads of internal audit and market development, and the personal assistant to the chief executive, The EastAfrican has learnt.

“We did some cost cutting last year and adjusted our manpower base to the bare minimum in order to remain afloat. We are also taking prudent financial decisions this year that will help minimise future cost pressures against the exchange,” said USE chief executive Paul Bwiso.

“The year was tough for us, as was 2017. If the market does not recover this year, stockbrokers will be forced to become creative in order to survive in business,” he added.

A look at local stockbrokers’ earnings for 2017 highlights relatively weak performance, a trend likely to creep into this year’s reporting season.

Total income earned by Crested Capital Ltd dropped from Ush1.8 billion ($483,054) in 2016 to Ush1.4 billion ($375,709) in 2017 while its total expenses declined from Ush1.78 billion ($477,687) to Ush1.5 billion ($402,545).

The company registered a profit of Ush40.7 million ($10,922) in 2016 but suffered a loss of Ush168.8 million ($45,299) in 2017.

Baroda Capital Markets Uganda Ltd’s total revenues rose from Ush102.9 million ($27,615) in 2016 to Ush154.6 million ($41,489) in 2017.

Total operating expenses rose from Ush52.2 million ($14,009) to Ush80.8 million ($21,684) during the same period. Profit before tax increased from Ush50.6 million ($13,579) in 2016 to Ush73.7 million ($19,778) in 2017.

Brighter future
However, the head of Uganda’s Capital Markets Authority Keith Kalyegira foresees a brighter 2019 for the USE.

“While uncertainty related to Umeme’s concession affected stockmarket trading activity last year, latest signs of weakness of the US dollar on the international currency market are likely to entice large foreign investors to explore emerging markets again,” said Mr Kalyegira.

“An improvement in the USE’s banking stocks later in the year may raise optimism about economic recovery and lure more institutional investors back to the stock market.”

Mr Kalyegira said that the lost commission revenue stream on the USE has been partly compensated for by faster growth in licence fees collected from unit trust schemes.

“Total assets held by these schemes grew from Ush20 billion ($5.3 million) to Ush40 billion ($10.7 million) last year and we are optimistic about stronger growth in this segment this year,” he said.

“We are optimistic about generating more revenues from our investment advisory business this year as some pipeline deals reach maturity. Our stockmarket trading outlook is pessimistic and we do not see hope of realising high revenues from that segment this year.

“A decision to cut running costs enabled us save significantly on operations costs,” said Kenneth Kitariko, the chief executive of stockbrokerage and investment advisory firm, African Alliance Uganda.