The net value of the assets of Ugandan electricity distributor Umeme Limited dropped by Sh9.96 billion in the 12 months to June 2023, eating into the potential capital gains that shareholders will receive in compensation when its concession to distribute electricity in the country ends in 2025.
The firm, which has been cross-listed on the Nairobi Securities Exchange (NSE) since December 2012, 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 at the value of net assets plus a premium of five percent.
Amortisation and corporate transfers have, however, been reducing the present value of the assets progressively as it winds down towards the handover back to the State.
By the end of June 2023, the present value of the company was stated at $251 million (Sh36.2 billion), down from $320 million (Sh46.2 billion) a year earlier.
“The present value expected to be recovered as a buyout amount at the end of the concession was $251 million (Ush921,437 million) as at period-end [31 December 2022: $271 million (Ush1,008,916 million)],” said Umeme in its 2023 half-year financial filings. Currently, the stock is trading at a price that is well below its book value, pointing to a sizeable capital gain for investors holding out for the government buyout.
The stock’s closing price of Sh13.95 per share gave it a market capitalisation of Sh22.65 billion, highlighting the size of the capital gains available at present value under the terms of the planned State takeover.
In the meantime, investors have been enjoying dividends from the firm.
In the six months to June, Umeme declared an interim dividend equivalent to Sh1.5 billion or Sh0.92 per share, even as it accelerated debt payments ahead of the conclusion of its concession. Umeme did not declare an interim dividend in the same period a year earlier.
The dividend will be paid on February 29, 2024, to shareholders who will be on record as of February 9, 2024.
Umeme’s main shareholders include the International Finance Corporation (IFC), which retains a 2.8 percent stake acquired during the firm’s 2012 Initial Public Offering.
For Kenyan investors, the value of the dividends paid by the company has increased thanks to the strengthening of the Ugandan shilling against the Kenya shilling in the past 12 months.
Umeme grew its operating profit by 36.4 percent to Sh9.4 billion in the period, helped by growth in sales by 19.9 percent to Sh41.6 billion.
Its net profit, however, declined 79.5 percent to Sh510.4 million due to a sharp increase in writing off the value of the company’s assets close to the end of the concession.
Umeme increased its loan repayment by 12.3 percent to Sh3.9 billion, with the company saying it plans to settle the remaining term loans by December 2023.
