Uganda-based electricity distributor Umeme Limited’s share gained 40.3 percent last week in trading at the Nairobi Securities Exchange (NSE), helped by demand from investors looking to take advantage of a price correction following the closure of books on a Sh2.23 per share dividend.
The stock, which is among the best yielding at the market in terms of dividends, opened trading last Monday at Sh9.98 per unit but rallied during the week to close at Sh14 on Friday.
The week’s opening price represented a three-month low for the share, which gave investors who were seeking a position in the stock an attractive entry point.
Prior to this correction, the share had rallied to a seven-year high of Sh17.75 ahead of its dividend book closure on June 27.
In March, Umeme raised its dividend by 18.6 percent after growing its net profit for the year ended December 2022 to Sh5.162 billion.
Previously, the company had paid a dividend equivalent to Sh1.88 per share.
In addition to the dividend considerations, investors have been keeping an eye on potential capital gains under a Uganda government plan to buy back the company from private investors in just under two years at a premium on the current valuation.
Umeme operates a 20-year electricity distribution concession from the government of Uganda.
The assets and operations of Umeme will be handed back to the Ugandan government after the expiry of the concession in March 2025, with private shareholders getting compensated.
By June 2022, the present value of Umeme, excluding amortisation of transfers from intangible assets, is expected to be recovered as part of the buyout amount of $320 million (Sh45 billion), the company’s filings show.
The compensation is expected to be at the book value plus a premium of five percent.
Currently, the stock is trading at a price that is well below its book value, pointing to a sizable capital gain for investors holding out for the government buyout.
