Stanbic’s UGX 300bn dividend post-Umeme – yield grab or reform rethink?

The Uganda Securities Exchange (USE) has been facing significant challenges following the exit of Umeme, which wiped out over 50% of the turnover on the exchange. The suspension of Umeme led to an astonishing 88% drop in turnover, raising urgent concerns about market stability and investor confidence. Masha Katende, Investment Associate at Cornerstone Asset Managers, discussed the structural reforms needed to restore liquidity and confidence in the market. A key concern is how the upcoming disputed Umeme payout will be reinvested and its impact on market dynamics. The direction of capital flow, whether into government securities, local equity market, or regional opportunities, will have a significant influence on liquidity and market sentiment. Katende emphasized the need for modernization in market structure, such as expanding mobile trading, introducing market makers, and enhancing transparency to improve liquidity and market resilience. Attracting new listings, especially in major sectors like banking, financial services, oil and gas, and agribusiness, is seen as a catalyst for restoring trust and deepening liquidity. The potential listing of Centenary Bank, Uganda's second-largest bank, and Uganda National Oil Company could attract new retail and institutional investors to the market and provide direct access to key sectors. The Ugandan Securities Exchange (USE) is anticipated to grow with a shift towards SMEs and diverse sectors ripe for listing. Stanbic Uganda has emerged as a significant player in the market with a large dividend payout and strong underlying fundamentals. The bank's 39% dividend yield supported by profits over 400 billion shillings indicates strategic investments in critical sectors like agriculture and oil and gas. The dividend payout is viewed as a sign of a well-managed bank contributing to Uganda's economic growth. However, concerns about lack of reinvestment opportunities are challenged by Stanbic's strategic investments and support for key sectors, signaling resilience and proactive growth. The absence of sophisticated investment products like real estate investment trusts, green bonds, and ETFs in the Ugandan capital market ecosystem is attributed to regulatory hurdles and low market depth. Addressing regulatory frameworks for tax, ESG standards, and liquid share indexes are essential for the rollout of innovative financial products. Market developments to watch include the resolution of Umeme's future, upcoming Q1 results from major listed companies like MTN Uganda, and AGMs that will shape market dynamics and investor sentiment. In conclusion, the Ugandan stock exchange is poised for transformation through structural reforms, new listings in key sectors, and the introduction of innovative financial products. Amidst challenges from the exit of Umeme, Stanbic's dividend payout, and market developments, the path to restoring liquidity and investor confidence is paved with opportunities for growth and diversification.