[2008-09-08]  Uganda Clays is Doubtlessly the Company of the Future
Ten years ago few would have imagined just what a money-making instrument the Uganda Securities Exchange (USE) would become. However those with a keen eye are reaping big from their adventures on the USE.

The bourse has witnessed a number of IPO's, stock splits and rights issues. The stock with the greatest pay off so far has been Uganda Clays. This week it closed at Shs200 following the company's just concluded stock split.


The last price for the stock before the stock split was Shs11,295 that was on August 28. However, on September 1 it commenced trading post-split with the price trading between Shs110 and Shs140 on the first day of post-split trading. The stock however demonstrated steady increase through the week.

Effectively, if the price was trading pre split this Shs200 is actually equivalent to Shs20,000, demonstrating an approximately 655% increase from the price at the rights issue which was Shs2,650. However, given that the stock is trading post-split the said Shs20,000 is now reflected as Shs200 on the USE price board.

Evidently, a stock split provides a psychological advantage to would-be buyers because they perceive the stock to be more affordable following the split which released 1,000 shares for each share being traded under Uganda Clays on the Stock Exchange. The split reduces the per unit cost of each stock in spite of the fact that the real cost is actually the same.

This aggressive increase in the share price is a clear demonstration of what the Uganda Clays shareholders were seeking to achieve. Psychologically if you were to ask someone to buy a stock at Shs20,000 they would tell you that that's too expensive for them. However, if you asked them to buy a portion of the same stock at Shs200 they would consent to buy in spite of the fact that the real price is still the same, however the Shs200 sounds much more affordable and actually translates to a portion of the previous stock.

For Uganda Clays this is quite interesting because the stock price is essentially being driven by the man/woman on the street, because it is the retail investors who have expressed interest in the share and actually increased their demand for the stock as opposed to the institutional investors who perceive the stock to be too expensive in light of their valuation methodologies. However, who said that stock markets are driven by rationality?

Uganda Clays is a stock that many Ugandans feel is "theirs" for all intents and purposes! This occurs essentially because of its Ugandan shareholding structure. Further to this, the company has done a good job at keeping its production lines going for quite a number of years. It is therefore a stock that a number of retail investors are prepared to believe in and put their money where their mouth is.

Furthermore, a number of people are of the belief that we should see construction continuing to boom for many years to come and Uganda Clays should continue to be there at the centre of this boom contributing to the development of the industry well into this country's future, more especially because it may not have that many serious competitors visible on the horizon as Uganda continues to record quite a formidable housing deficit. Therefore many Ugandan's stand proud of its products and feel that this is one company that we can actually call Ugandan!

Because of these strengths this is one stock that has been branded "the stock of the future" also because the company is yet to demonstrate that its supply of goods exceeds the demand for its goods. Most of what it produces is immediately taken up. In fact its average consumer takes it for granted that you have got to pre-order the product you are interested in and wait in the queue before you obtain what you're looking for.

But the wait is worth the while because in all likelihood you will get the quality you are looking for. The retail investor will therefore be likely to continue to demand this stock and a number of them have branded it their solution to their Safaricom and New Vision rights issue refunds. They are therefore offloading stock in this regard and from other counters in favour of Uganda Clays. This may be the reason why over the last two weeks, we have seen the Stanbic Bank share drop from Shs235 to Shs200 as retail investors seem to have revised their sentiments in favour of Uganda Clays.

Should supply of the Uganda's Clays stock continue to be limited we may continue to see an increase in its share price if the demand for the stock experienced this week is anything to go by.

The challenge for the company is however to reassure its shareholders that it's well able to handle its expansion strategy and that feasibility studies for these projects have been comprehensively undertaken. Further to that its capacity to handle current and potential competition is not something that should be assumed, but it should be ready comfort that management is able to continually provide to those that have demonstrated confidence in the company. It's only against this background that we can brand Uganda Clays "The Company of the future!"



Source: Allafrica