Is UMEME asymmetric risk or extreme reward? A Hail Mary, or a calculated edge?

At 63 shs per share, UMEME is valued at 102Bn shs. As at 31 December 2025, UMEME was being demanded about UShs 437 billion by UETCL, while UMEME’s principal claims against the Government of Uganda totalled UShs 949 billion.

The gross difference is therefore about UShs 512 billion in UMEME’s favour, before any contractual interest, arbitration costs, offsets, or final tribunal determinations.

Downside: UShs 0 per share, a 100% loss

Full win value: about UShs 367.5 per share

Upside multiple: 483% gain

Break-even probability: approximately 17.1% before discounting and unmodelled costs

Which means that if you buy the shares at the current price, your upside is about 483%. This, however, does not account for ongoing corporate costs, legal fees, and 20% annual interest on the disputed amount, which may increase the disputed amount.

But if UMEME loses, you may lose everything. If UMEME wins the opportunity in Sierra Leone, it’ll most likely fund the expansion using debt and repay the debt using the cash flows from customers in that country.

In 2005, shortly after UMEME had just signed the electricity concession in uganda, they served about 290,000 clients with revenues of about 160 billions in 2005 compared to the 2.3 trillions they earned in 2024 at the peak of the contract with millions of clients.

Consequently, when and if they enter Sierra Leone, their revenues will not be as high as most people expect. It’ll take a lot of capital expenditures to get the systems to a level where they will earn significant amounts.

Can I buy now and wait for 15 to 20 years to get magnificent returns? Sure. Can I buy 2 years later? 5 years later and still get good returns? Of course I can. There is no hurry at all. Preservation of capital is perhaps the most important duty of anyone allocating capital.

Nothing brings ruin faster than the desire to get rich fast

According to the law of risk aversion, if you had UGX 100,000 shs and were given a more-than-fair bet that was 50/50 in terms of the probability to win or lose:

Utility (of money) = Expected Return − (investor’s risk aversion) × Risk of occurrence.

Where, when you win, you are paid an extra 130,000 shs to bring your net worth to 230,000 shs, but if you lose, you lose your 100,000 shs.

You are better off not taking the bet.

Because the joy of winning an extra 120,000 shs is less than the pain of losing all the 100,000 shs that you have, and that makes sense.

Nobody wants to be at zero.

At a 120% profit return, the law of risk aversion would suggest that you do not take the bet.

At a 483% return, it is justified to take the bet because there is a 363% extra upside.

Now, this upside is calculated using Berkshire Hathaway’s mental model, where an investor who owns 0.002% of the company should think like the one who owns 99% of the company.

Therefore, an investor who genuinely believes the chance of a full economic recovery is materially above 17.1% has a positive expected-value case on these assumptions.

But that’s just how to think about it. How to feel about it is a different conversation. The possibility of losing whatever amount you have put up can cause psychological pain that becomes physical through insomnia, loss of appetite, and sickness.

If you doubt it, ask the QCIL shareholders who bought at the IPO. They’ve never recovered.

I take the simple approach nowadays. Anything that puts me in a situation where I may have to summon the Hail Mary through a prayer, I try to avoid.

Someone once said that if your capital allocation involves emotional outbursts, both good and bad, then that is not investing, but rather trading.

In simple terms, to invest well, you have to be cold as stone and avoid allocating money to a position that tips the scale against you.

Emotional capital allocation means you’ll make mistakes. What happens if you buy UMEME at 63 shs a share and it goes up by 25% to 78.75 shs a share? You’ll be tempted to sell and take profit because the uncertainty eats away at your soul.

There are, however, investors who can take on the shares at 63 and not be emotionally attached to whatever outcome.

The whole point of analysis and calculations and research and study is to be able to make stone-cold decisions whose effects you can live with.

The money was to take care of legal costs in London.

The plaintiff, Sudhir, wants 170 million pounds, or a pound of flesh.

That is equivalent to UGX 853,910,000,000 shs.

According to the DFCU 2026 half-year financials, the bank’s total equity stood at 755,422,000,000 shs.

So, the plaintiff wants 1.13 times the total equity of the bank.

I don’t blame him; the net income peak in the last 10 years was shortly after the bank was gifted Crane Bank’s assets. In fact, that very year.

What a joy it was for shareholders to see all those profits. Grabbing up all the interest on loans you didn’t break a sweat to issue. Gaining transaction charges on clients you didn’t suffer to get.

The DFCU Israelites had reached the promised land, overflowing with milk and honey

Business was too good; there was a rights issue, where they raised more equity and issued more shares, and of course, shareholders who didn’t subscribe for these shares were effectively diluted.

DFCU had 497,201,822 issued and fully paid shares before the transaction. During 2017, it raised additional shareholder capital, converted into roughly 250.9 million new ordinary shares, taking issued shares to 748,082,989 immediately after the rights issue

shortly before the downward spiral began.

Some analysts think that if DFCU loses the case, they’ll have to declare bankruptcy. Some think that Bank of Uganda, though, won’t let the bank go bankrupt and will have to step in with a bazooka of cash to save them, as it led them into this trouble.

The retained earnings above are already included in the total equity. The chart simply separates them for you to get a clear picture of the situation

Bank of Uganda, as a “sovereign entity,” seems to have distanced itself from the case so far, and DFCU investors seem not to be indemnified against the costs by Bank of Uganda.

Most retail acquisitions of shares of DFCU were based on the bank’s interesting valuation, where it traded for about 0.3x its book value.

Which means that for every 1000 shs of book value and equity, the market was offering a valuation of only 300 shs, which investors paid for. Quite ingenious if you ask me. Why? Because good things tend to happen to those who buy things cheaply

This, to many analysts, seemed like an Investment Buffet would drool over.

They probably thought that DFCU would be the next Bank of Baroda Uganda, which has brought more than 320% returns to shareholders within a 3-year span

But there’s a catch for everything.

And those analysts soon discovered why the bank was trading at a low price in the first place.

With future dividends uncertain, growth and recovery of the bank, in terms of reducing non-performing loans, hinged on lending out less money to the public and buying fixed income instead; they are wondering if they have been left holding the proverbial “biggest bag of odorous excrement ever assembled in the history of capitalism “

The bank trades at 3.3 times its earnings. At such a book valuation, it is safe to say the assets are underutilised

If Dfcu loses the case, thoughts are being thrown around that the largest shareholders will not just sit back. Arise BV, which is one of the largest shareholders, which has beneficial owners such as the Norwegian Sovereign Wealth Fund, may step in to save the day by providing funding.

But to me, this seems like a Hail Mary being resorted to by hardcore veteran heathens.

They don’t really believe it’ll happen, because confidence is backed by leaning in with the full weight of the cash assets at hand, but they hope that a miracle shows up when needed

With fixed income yield rates slowing down, will DFCU continue allocating more money into the fixed income bracket, and how will that affect growth and performance?

The bank seemed to have taken a stance on cleaning up the balance sheet, without actually solving the problem at hand.

They struggled with bad loans, and the solution would have been to have better due diligence and better systems to handle loans better, but instead. They pivoted to fixed income with a 100% recovery rate.

By the end of 2025, the total amount of gross loans was almost equivalent to the total amount in securities. If it were primarily an Investment bank, and not a commercial bank, that would be understandable

But as the bond yields lower, their returns as a bank may slow down if they continue going down this path.

What does this mean for the small shareholders? Because the large institutional shareholders have access to premium shareholder information, and can weather any storms

On the other end, Sudhir has lost before, and may probably lose again, and all this may turn out to be white background noise at the end of the day.

And he reimburses DFCU for all the legal expenses and trouble and maybe emotional turbulence and whatever else the legal team can throw in to recover more funds

But it then shows you that investors have to make investment decisions in the face of uncertainty, because opportunity lies in Chaos.

Now, I, as an allocator of capital, prefer investing in companies which can withstand any bad news. If Stanbic loses a URA case, it can bounce back within a year or less. I like such companies. Helps me sleep better at night.

I can tell you my DFCU shareholder friends aren’t sleeping at night. In the wee hours of the night, they’ll send you random DFCU projections, and then go ahead and criticize their own investment thesis and tear it up. Sleepless nights over sleepless nights.

They are not certain if the DFCU legal costs were a one-off or continuous. I don’t blame them. Legal cases involve retainer fees and hourly fees. They are not certain if dividends will be halted. Well, the half-year results show management ain't paying a dividend. They are concerned about the growth rate of the bank compared to peer banks. They are concerned that the bank is investing more in fixed income. Yet the yields are reducing. And as they worry about all this, I sleep like a baby at night.

Not because I don't like investing in opportunities, given that most opportunities are found in the middle of chaos, but, as I prefer Munger’s one-foot hurdles: businesses strong enough to absorb bad news, rather than distressed situations where the investment thesis depends on clearing a ten-foot legal, operational, and capital hurdle.

A very good friend of mine, about 2 years ago, found himself on the right road at the wrong time, and was involved in a terrific accident instigated by highway robbers, who were generous in calamity and causing pain to their victims.

Ever since then, I always postponed the day I was to pay him a courtesy visit. Minting excuse upon excuse, until a few Fridays ago, when I thought to myself that if I didn’t see him then, I surely wouldn’t see him this year, as I’d get myself a fresh list of excuses.

But you see, interest accumulates even on delayed friendships.

So instead of buying myself biscuits, cake and lots of yoghurt in preparation for a Friday movie night, I decided to look out for him at his workplace.

I was surprised that the place was in the middle of the city. Literally where I pass almost every day. Every time he gave me directions over a phone call, I thought I’d need a full tank of gas just to get to him, which shows that all the excuses for the past years I told myself amounted to nothing.

He is the kind of friend where a few words get us to start giggling like schoolgirls

until the discussion moved onto his dreams.

There are two things he loves more than the other gender, which is saying much for a man who has eyes, farming, and the dream of establishing his own school.

And as we sat here talking about his recent challenges of bidding for contracts for his agricultural produce, I questioned why he wouldn’t sell to the school that he set up.

Now, I was deliberate in mentioning that, knowing that he had not yet set up the school, and was always postponing year after year, after year, with almost the same vigor I had always used to postpone paying him a visit

His reason was lack of capital. An excuse that we all use for not pursuing our dreams. That ancient, respectable excuse which we all polish and display whenever we are unwilling to admit that the true shortage lies not in our pockets, but in our imagination. If you asked me why I haven’t yet pursued my dream of owning a bank, I’d surely tell you I didn’t have enough capital, but I’m on my way to getting to that dream, because I own a private fund that will one day buy a majority stake in a bank. And that the fund was the bridge, the means of getting there, not the end.

Capital, it appears, is far more willing to visit you when it finds you already walking.

His case was different; he had literally hidden the dream somewhere in the cellar of his mind. One could almost imagine the dream sitting alone down there, shivering among abandoned ambitions, a little school building in the dark, waiting for children who never come.

with the heartlessness peculiar to true friendship, i decided to disturb his comfortable neglect and pulled on the strings of his dreams, filled his heart with longing, and the desire he once had the night the dream came to him, and as he stretched his mind about, dusting off old plans and half‑remembered possibilities, we discovered, much to his surprise, that he could make the dream come true. Not in the next 4 years as he was projecting, but right now, in the dangerously immediate present where things actually happen.

We sat together and asked ourselves, what was needed. First, land. Lots of land. On this point he was rich beyond the dreams of most, with acres upon acres in some village far away, to which I responded, for schools, location was never a problem. I’d known parents who had taken their kids to schools hundreds of kilometers away from home. he just had to do the right things and build the right infrastructure in the large estate he had, turning acreage into ambition.

Next was lack of cash

He recalled a lady who had once expressed interest in owning a school. Right that minute, we called her, and behold, even if she was in the middle of construction of a high-rise property, she still had interest in owning a school. Now, he had the cash.

Even before the plan had been put on paper, before any consultant could cover it with diagrams and fees, someone was already willing to co-finance his dream. His farm could sell its produce to his school. His idle land could host the classrooms. His experience could manage the operations. The pieces of the puzzle, which he had kept scattered across years of complaint, quietly slid into place under the pressure of a friendly conversation.

When all this was arranged, and the lady was off the phone, he looked at me with a knowing smile. He knew that he could no longer use the excuse of a lack of capital when this discussion came up, and that if he never achieved his dreams, it would be entirely his own fault, because at that moment, the Gods were smiling down on him.

I’ve always told whoever cared to listen, and many who do not, that it is never a lack of capital. It’s a lack of a good idea on how to make money, or worse, a lack of courage to walk behind a good idea for long enough. There is, in truth, limitless capital in the world, and the only reason we can’t attract it is that our ideas are trash and unworthy of investment. Our task is not to complain about scarcity, but to avoid joining the queue of bad proposals, which is extremely long.

I’ve seen this in my own life. Very many years ago, I struggled to raise a penny. Each coin arrived escorted by angels and departed as soon as it arrived. Now, when I tell my clients of a great company in which we can buy shares, I can raise hundreds of millions within minutes. And on days I have no ideas where capital can be allocated, existing clients reach out asking for ideas on where they can allocate their money, which is a good thing. To them, I should always have great investment ideas coming my way, which keeps me reading and researching, looking for awesome investment opportunities.

How did this happen? Surely not overnight

can only be done by having a track record of your ideas materializing into value for the people involved. Turning ideas into value for those who entrusted me with their capital.

A track record is merely a history of promises kept

Do that long enough and people will soon ask you for the ideas you have that they can allocate money to. When you have repaid confidence often enough, the world’s favourite question shifts from “Can you deliver?” to “What shall we fund next?”

My friend was able to secure that prospective investor for the school because she had witnessed him deliver extraordinarily well on another farm assignment about 9 months ago, and his thoroughness and the money he made for those involved convinced her that he could deliver on the school.

Capital, it seems, is a shy creature that flocks to those who have already made it comfortable.

That’s why we take our kids to the largest schools, desire to attend the biggest universities, use the biggest banks, desire to use phones of the largest brands, or drive the cars with the oldest brand.

We are always looking for social proof of our thoughts, and these are best expressed by others using those products. The advertising community knows this, and uses it all the time.

Alphabet was able to raise USD 80 billion for AI infrastructure, including USD 10 billion from Berkshire Hathaway, because it has a track record of turning every dollar of capital expenditures into disproportionate cash for shareholders

SpaceX can float a USD‑trillion‑plus IPO and raise tens of billions of new capital because it has a track record of converting ambitious engineering into recurring cash flows in launch services and satellite internet.

Bain Capital raised USD 10.5 billion for its sixth Asia fund because it has a track record, over two decades, of compounding capital in the region across cycles.

Sun King, M‑KOPA and d.light have attracted nearly USD 1.5 billion of capital because they have a track record of turning solar kits and customer data into annuity‑like cash flows across East Africa

Twiga, Wasoko and Copia raise hundreds of millions of dollars because they have a track record of turning fragmented dukas and supply chains into data‑rich, bankable distribution platforms.

Dangote can raise billions of dollars and has a long list of people willing and hoping to give him capital because of his track record.

Tugende and Asaak have pulled in significant capital because they have a track record of transforming boda‑boda loans and small assets into diversified, cash‑generating portfolios.

More than anything, the only reason you may have no capital for your ventures is a lack of a track record for your ideas turning into monetary value, or perhaps the proposal you laid out to a prospect wasn’t that compelling. And that’s okay. It’s not the end of the world; you can always get better at laying out your ideas and coming up with better ideas while we are at it.

One of the reasons this story about capital and track records is so dear to me is that it echoes my best Bible story, and probably the one story I quote all the time during conversation. the parable of the talents in Matthew 25:14–30. In that parable, a master entrusts different amounts of money to his servants, and only those who put the capital to work, multiply it, and deliver results are rewarded; the one who buries his talent in the ground loses even the little he has.

I have always been struck by that severe kindness: to those who use well what they’ve been given, more is entrusted; to those who hide it in fear or laziness, even their small allocation is withdrawn. It is the same law that governs investment and enterprise today.

Capital, whether divine or human, gravitates to those who have a history of turning resources into real value, and quietly abandons those who prefer excuses to execution.

The bank has deliberately increased its capital surplus. The core capital ratio stood at 21.3% and total capital at 23.0%, comfortably above the 10% and 12% regulatory minima plus buffers, and double the 6% minimum leverage ratio with an actual leverage ratio of 12.1%. Instead of returning that money to shareholders as dividends, as most shareholders would have preferred, the bank decided to deliberately keep it in order to absorb future regulatory shocks. And this is for good reason.

URA’s various tax assessments add up to UShs 154.245 billion in principal tax across the disputes, before interest and penalties, through the Transfer pricing assessment and additional franchise fee payments, an amount which has not yet been recognized as a liability in the financial statements of Stanbic Holdings. If the full URA amount were recognised as a liability and expense, it would wipe out most of one year’s profit, as profit after tax would drop by 26% from 591 bn to approximately 437bn, based on last year’s profits. This simple calculation, though, doesn’t take into account the growth rates of the bank, its ability to print more money, and generate higher profits.

Seeing that stamp duty tax and transfer pricing tax are being appealed by the Uganda Bankers Association, it’s safe to assume that other banks in the country are being affected as well, and banks without sufficient reserves, capital adequacy ratios, and impressive revenues may produce lower profits after tax, in case URA wins the appeals.

If that were the case, the reduced profitability would provide an opportunity for the purchase of more shares in the public markets. Sadly, most banks are not listed, and the listed local banks, like Stanbic, are prepared for such scenarios, while the others are cross-listed behemoths.

Fat camels that can live in the desert of reduced profits in one region for a substantial period of time, as it’s offset by increasing revenues in other jurisdictions.

When prices are right, and if not mismanaged, it’s advantageous to own such camels. Even locally listed banks like Bank of Baroda now, too, have sufficient reserves for a scenario like this. I’ll look out more for this in the DFCU and Baroda reports. The only way this may affect banks is in the dividend.

In an economy where most people invest in equities solely based on current dividend yield, many people are not prepared for scenarios where the dividend is cut.

Moving on, I decide to read and think more about other topics.

Stanbic in 2025 disbursed loans equal to 5.125% of the UShs 2.4 trillion to institutional clients, reaching about 184 SACCOs. That equals approximately UGX 668.4 million per SACCO. On average, those clients borrow at about 10%, which implies the institution earned roughly UGX 12.3 billion in gross interest. This excludes non‑interest income such as transaction fees, processing fees, and account maintenance fees.

Given that the SACCO proposition has cumulatively provided UShs 288 billion in financing to 923,000 SACCO members since 2021, the implied average end‑borrower exposure is only about UShs 312,000, underscoring the bank’s role as a wholesale aggregator of micro‑ticket credit risk.

The 10X Digital Boost Programme, which trained 3,047 young women entrepreneurs and onboarded over 300 businesses to FlexiPay, is seeding cohorts of future high‑frequency transactors directly onto Stanbic’s own payment infrastructure, engineering a path‑dependent bias in their choice of primary bank.

They definitely will not leave.

Other than focusing on market share-grabbing of client accounts, Stanbic Holdings has decided to create its own clientele from scratch.

In 2025, the Stanbic Business Incubator facilitated UShs 40 billion in funding and “strengthened bankability” for 3,396 entrepreneurs, many of whom accessed loans for the first time. That is roughly UGX 11.7M in credit funding per entrepreneur, or per business.

I call it credit funding because the bank doesn’t take on equity positions in the institutions. At least not yet. Equity positions are usually taken on by Uganda Development Bank. Stanbic Holdings sees it as inconsequential to take on equity positions in these businesses, as they don’t generate enough cash to move the needle.

Signalling and market perception. For a listed entity where only one director is disclosed as a shareholder and holds a token amount, the market reads the governance story as “well‑paid overseers, with little personal exposure.”

If multiple directors disclosed meaningful SUHL holdings, it would strengthen the implicit signal that insiders believe in the risk/return profile they are marketing, which can tighten the discount the stock trades at to intrinsic value.

It is very disappointing that a whole director of the bank, Josepha T. Ndamira, only held 30,000 shares, valued at only 2,310,000 shs at a market price of 77 shs a share, as reflected on page 87.

This is disappointing because a gross dividend of only 129,000 shs is trivial relative to typical director fees, so board decisions about payout, risk, and growth barely touch her personal economics. Does that mean that other directors and executives are not investing in the company? How will the other employees take advantage of the people they look up to, and not follow suit?

If the directors had more shares, the payout policy and risk appetite would be well influenced. If they held more shares, if she held, say, 3 million shares (0.006% of SUHL), her annual dividend would be about UShs 12.9 million at the same time, and every 10% move in the share price would add or wipe millions to her portfolio, enough to make capital allocation, leverage, and dilution choices personally consequential.

Attached below is the full-year report for reference

A

13.3MB ∙ PDF file

Download

Download

Yet the glossy illustrations in brochures and textbooks that show smooth, uninterrupted growth at, say, 18% per year for decades are profoundly misleading.

They assume you can reinvest earnings through coupons or dividends at the same high rate, year after year, without friction. In reality, this is exceptionally difficult, even in fixed income and especially in equities.

The core issue is that as a company or security performs well and distributes cash, its price tends to rise. When you reinvest that cash, you buy the same asset at a higher valuation, often a premium.

Your effective compounding rate on the reinvested portion is therefore lower than the headline return on the original principal. This is a fundamental limitation that realistic analysis must confront.

Fixed Income: Coupons and Reinvestment Risk

Consider a simple bond. The principal may reliably return its yield, but coupons must be reinvested. If interest rates fall or the bond trades at a premium, your reinvestment yield drops.

Prices fluctuate with demand, inflation expectations, and monetary policy, so you often buy back in at less favorable terms. Sustaining the exact original yield on the entire position over time is incredibly rare and almost next to impossible.

Reinvestment risk is frequently overlooked in bond investing, crowded out by the obsession with price swings when interest rates move.

Investors tend to focus on the mark‑to‑market losses that occur when yields rise, even though those price declines usually reverse if the bond is held to maturity.

The danger lies elsewhere. As coupons are paid and principal is returned, the investor must put that cash back to work, often at yields that are meaningfully lower than those on the original purchase.

This has been particularly problematic in long stretches of falling interest rates, where each reinvestment step locks in a poorer deal than the last.

Many investors, wary of seeing bond prices dip, avoid longer maturities and cling to short‑term paper, only to find themselves perpetually rolling into ever‑lower‑yielding instruments.

That behaviour trades long‑term wealth creation for a sense of comfort and optionality.

Short‑dated positions and deposit products with eye‑catching introductory rates, which the bank can reset at will, keep the investor constantly exposed to reinvestment at whatever rate the market or bank offers next.

In contrast, committing to longer‑term fixed income can significantly stabilise future cash flows, assuming credit quality holds, which is a topic for another day

Thoughtful structures such as bond laddering, where maturities are spread out over time, or barbell portfolios that combine very short and very long maturities, can strike a better balance between reinvestment exposure, price sensitivity, and liquidity needs.

Ultimately, while the bond’s principal may deliver the promised yield if held to maturity, the stream of coupons and reinvested capital almost never compounds at that same rate.

Equities: Dividend Growth and Price Appreciation

The challenge is sharper in equities, especially for strong dividend payers or growers. As dividends rise, the market bids up the share price.

Reinvested dividends purchase fewer shares than they would have at the original lower valuation.

Capital appreciation itself reflects the market capitalizing future growth and payouts, so your reinvestment happens on richer multiples.

Textbook charts assume constant return on the entire balance, including reinvested amounts, at the original rate.

In Reality, the principal enjoys the company’s underlying return on equity and cash flow growth, but incremental capital faces higher prices, thus lower prospective yields.

In equities, this is amplified where good performance is rewarded with higher multiples.

Over long periods, truly exceptional companies can deliver outstanding compounded returns, as you can think of quality businesses with durable moats reinvesting wisely or returning capital efficiently.

But for most, and in any single year, the path includes variability, valuation changes, and reinvestment friction.

Fixed income faces yield curve and rate shifts while equities face multiple expansion and contraction.

If one disciplined investor manages to reinvest all dividends back into the same shares and realise the full total shareholder return, that outcome depends on others behaving differently.

The equity premium is not available to everyone in equal measure, as for one party to lock in an above‑average compounded return, there must be counterparties whose realised returns are lower than that headline Total shareholder return, simply because they sold off for whatever reason.

If the Carbacid 3-year total return is 189.4%, which is about 63.13%, not all shareholders achieved it. In fact, the shareholders who re-invested coupons probably earned a much higher return, while those who trimmed positions and rebalanced portfolios, had a much lower return and didn’t average 63.13% a year

Compounding is impressive. But disciplined investors respect its real-world constraints, such as reinvestment risk, valuation dynamics, and the difference between the return on your original principal versus marginal currency returns.

Revenue grew 8.7% reported, but would have been 12.1% at constant currency.
This may show an improvement if forex rates stabilize during the much‑anticipated oil era.

With a dividend payout ratio of about 107%, investors have a dividend yield of 11.9% at trailing share prices of UShs 140 per share.

Umm, older investors get a higher dividend at purchase price, of course, but new investors get 11.9%.

Old investors who bought when I first recommended at 60 shs a share have a dividend yield of 27.6% at the purchase price.

The current dividend yield of 11.9% at current prices enables old investors to evaluate the company on current principles and evaluate opportunity cost, in case they consider selling off the shares and investing elsewhere.

The current price-to-earnings ratio is 9x, which is high, but duly supported by a high dividend yield.

Operating cash flow more than doubled from UShs 30.3 bn to 67.5 bn, driven by better profitability, improved working capital, and the Government of Zambia collection, and the strong internal cash generation lowers reliance on external funding for the Luzira expansion.

Cash used in financing activities was UShs 59.3 bn, mainly dividends, significantly higher than the prior year’s UShs 42.5 bn.

Set against a new major capex programme, management’s explicit statement that this dividend does not set a precedent, and a 107% payout ratio, the probability of dividend growth stalling or even a trim in a tougher year is real.

There may be an interim period where capital expenditures are high, utilisation is tight, and any demand or pricing wobble would feed straight through to margins and returns, as management has noted that the company is operating near current manufacturing capacity, making growth more dependent on price mix and less on volume until the new plant comes online.

In a QCIL world where price discovery is driven by relatively few marginal trades, new entrants are often forced to pay up to lift limited offers, embedding optimistic assumptions about margins and dividends that the board is already signalling may need to adjust over time.

Which begs the question. As an investor, what is your margin of safety? Can you quantify it? If your investing is reliant on dividend growth, which justifies share price increments, what happens to you when dividends stall or are cut? Do you have the stomach for it?

Location is seduction. It decides which firms reach scale and therefore listing.

Kenya’s East African Breweries Limited (EABL) could grow into a regional beverages empire precisely because it sat astride rail and road networks into Uganda, Tanzania, and beyond, turning logistical advantage into market share and, eventually, into one of the most followed tickers in the region.

Tanzania’s Stock Exchange and Rwanda’s Stock Exchange are younger and smaller, with fewer listings, thinner liquidity, but enormous optionality as infrastructure deepens.

Banks, brewers, cigarette hawkers, cement-makers, and telecoms fight for capital and customers in an environment of scarce savings, volatile politics, and young populations.

The fittest balance prudence with aggression.

The shares of the best in the industry are forbidden fruits. Highly desired, impossible to acquire, pushing up the share prices

CRDB, NMB, KCB, Stanbic, and similar banks on regional exchanges show how financial organisms with stronger balance sheets outlive weaker rivals and absorb their assets.

Delistings, trading suspensions, and quiet corporate deaths are natural selection recorded by a registrar.

Uchumi Supermarket on the Dar es Salaam Stock Exchange, or once-celebrated mid‑caps that slipped into illiquidity and oblivion, are fallen dynasties, their charts the corporate equivalent of abandoned ruins.

Listings are the moment when private entrepreneurial energy taps into the pooled surplus of pension funds, insurers, and households.

EABL’s listing gave it the capital to expand plants, build brands like Tusker and Pilsner, and entrench itself as a regional dividend machine. Banks’ IPOs and cross‑listings turned them from local lenders into regional financiers, able to follow their customers across borders.

Listed firms that treat the exchange as a one‑way tap, by raising capital but starving minority shareholders of information, governance, and fair returns, eventually face rebellion.

Sell‑offs, activist rumblings, and regulatory interventions are modern revolts. Markets reprice arrogance, and the fall in a share price is simply a compressed economic history of lost trust.

Politics shapes the very possibility of listing. Privatization waves in Kenya and Tanzania created entire cohorts of listed utilities and banks as states sought cash and efficiency

Each offer document is a peace treaty between the state and its citizens over who would own the commanding heights, as seen with institutions such as the Kenya Pipeline Company (KPC)

Delays in reforms and sudden regulatory shocks, around mobile money and tax policy, function as invisible wars, redistributing value between the treasury, consumers, and shareholders.

State‑linked entities in the form of airlines, pipelines, telecoms, and utilities oscillate between patronage and performance. One ought to be careful around patronage-based companies. The chances that they’ll fail are low, due to state handouts and, I wouldn’t call it their economic positioning, but their role in the ego of the population

Kenya Airways’ presence on regional boards reflects national ambition as much as pure commercial logic. Each capital injection or restructuring is a fresh chapter in the tug‑of‑war between national pride and financial gravity.

What would it cost to keep the national pride and ego high? No telling. Just a few more backs broken with extra tax burdens, and the national ego is maintained.

Telecom brands, national banks, and beloved media houses transformed into secular cults. The inability of consumers to have an emotional attachment to the brand risks the failure of the enterprise. The success of private, and hopefully soon to be listed, enterprises like Centenary Bank Uganda thrives on the Ugandan Catholics’ adoration and sense of ownership.

Investors and consumers gather around such institutions, accept short‑term pain through downturns and rights issues in exchange for long‑term promise.

Stockbrokers, fund managers, and newsletter writers act as priests and theologians, translating balance sheets into prophecy.

Capital, like masses of believers, moves towards the miracle workers. If your prophecies don’t come to pass, you are a false prophet, and so the capital migrates.

Buy shares in a company that stays stagnant for years, and even the strongest believers of your investment philosophy start shopping around for new prophets. You’ll be holding dead weight in your portfolio. Your broker won’t congratulate you. Your friends won’t ask for recommendations on what to buy. You’ll sit alone at investment club meetings while everyone compares notes on their winners, and you’ll nurse your loser in silence, wondering if you’re the only one who saw potential.

Earnings reports are liturgies where management re‑tells the founding myth. growth, resilience, and service to the nation.

Management doesn’t really believe it. They believe in the profits. The only people who may believe the liturgy are the founders of the institutions, and lucky are those who buy shares in companies that still have the founding families, because they have a lot to lose, and are willing to do whatever it takes, for the institution to exist even in the coming decades

When narrative breaks, when promises and numbers diverge, the congregation thins, and the “faith multiple” in the price‑earnings ratio collapses as capital migrates to the next promising enterprise.

The shareholders who stay are those who failed to exit when the going was good, and an exit now would amount to a great capital loss. In the early days, they’ll become activists, criticizing the management of the company to make changes. When nothing works, they lose all faith, turn anger into lessons learned, and move on, hoping that one day, a turnaround in the company will happen.

Breweries, cigarette firms, and cement companies that flourished in eras of import substitution and construction booms now face health campaigns, troublesome taxation, new competitors, and alternative materials. Their curves flatten, dividends remain rich for early investors, but real growth becomes harder.

Meanwhile, younger listings in telecoms, fintech‑adjacent services, or regional banks are in their expansion phase, their volatility consolidating into empires, as seen with Equity Bank, and the soon-to-be-listed fintechs

Liquidity remains patchy, governance uneven, and retail participation fragile, especially in times of macro stress.

What endures is the institutional memory encoded in the market. Every IPO prospectus, failed rights issue, dividend cut, and takeover attempt adds to a collective playbook about what works here, under these political, cultural, and demographic conditions.

Is Starlink really a threat to telecoms shareholders? Well, we’ll find out over the years.

Seeing the impact Starlink has had over the internet in the past years, I wouldn’t completely write them off, and their ability to innovate. So, a shareholder has to be vigilant with their capital, and always keep evaluating their position, and the best possible use of their capital, else they may eventually lose the unrealized gains.

The unrealized gains can quickly become unrealized forever

Then again, Starlink has partnerships with the local service providers.

And the average Ugandan user of the local telecoms for internet can’t afford a Starlink subscription. If 40% of Ugandans live below 7,900 shs a day, I doubt they can put aside 4,000 shs a day for Starlink, yet they can buy smaller, cheaper bundles with the local telecoms.

Then again, I don’t like to underestimate how deeply the internet hooks people, and how easily that can translate into impulsive, unwise spending.

According to a study done in 2024 in the USA, a whopping 97% of teens use the internet daily, emphasizing its pervasive presence in their lives. gives me comfort that more than 50% of Uganda’s population is below 35 years, and those who can access smartphones are mostly addicted. to think otherwise may be naive

According to a study done by Cecilia Cheng, Yan-ching Lau, Linus Chan, and Jeremy W. Luk on “Prevalence of social media addiction across 32 nations: Meta-analysis with subgroup analysis of classification schemes and cultural values” the Rates of social media addiction are highest in Africa, and I’ll debate that its not because of communication, but rather, an escape from the dily realities of their lives.

The exception to the inability to spend may be the institutional clients. Institutional clients can afford. Will they be incentivized by the local service providers in order to keep them as clients?

Will the profits of the duopoly normalize and move away from the abnormal profits that we’ve been seeing?

Do the local service providers think of it as a threat, or doesn’t it register yet? That comes down to how management thinks. Do you trust the management of the company you are invested in not to take this lightly and end up as obsolete as Nokia?

If there is any impact and uptake, how long does it take to show up in the financials?

All in all, I think the telecoms are good for now. We can trust management to do some pricing competition to remain relevant. But the local telecoms will survive and thrive, as evidenced by Safaricom in Kenya.

If Starlink continues innovating its satellite to mobile features, and ensures clients don’t have to move the antenna wherever they go, and innovates around the local service providers, then that will be a threat.

The next 10 years? We cannot predict the next 10 years. We cannot be very accurate, and we don’t try to be. But to be approximately right, we think the telecoms will still be turning a higher profit in 10 years than they are turning today, mostly because of the population dynamics of the very young, who are taking on and have grown up in the internet era, and don’t know how to live or exist or have fun without the internet.

The adults, too, have become addicted and can spend half of their awake time doomscrolling. As a capitalist and shareholder, this is music to my ears.

It is perhaps an irony that the disintegration of the individual is beneficial to the capitalist.

As a shareholder of banks and financial institutions, I love it when people borrow. Now, borrowing is largely attributed to need. I’ve seen people borrowing at 3% a month. On a straight line basis.. not even declining balance basis. This is terrible at an individual level, but music to our ears as the companies we invest in declare dividends.

Telecoms will move towards cheaper bundles. As they are already doing. 13 years ago. I would never have imagined that Airtel would send spam messages telling me to get a GB of data at 1,300 shs. Makes you wonder what you’ll be able to get in 10 years.

With the creator economy, monetization of the internet, and digitization of communication, no one will be able to escape the chains of the internet, and the person with the best costs and most charming adverts wins over the market.

Then again, we’ll be invested in the mobile money segments as well, so no worries. Starlink will have market share, but the local telecoms will survive.

Even in developed economies, where the margins of telecoms are low, telecoms like AT&T have thrived, even with significant Starlink presence, and long enough shareholders have received a total return of 1,015.6% over 30 years, which amounts to 33.85% per year.

One is to note, though, that AT&T does not have mobile money holdings, with operations around the country, charging exorbitant rates to short-term borrowers, which is good for shareholders in telecoms in Uganda and Kenya.

The only justification for selling such a business for an investor would be finding underpriced, valuable businesses to buy, which, we’ll have to admit, are not quite many.

So, telecom in Uganda isn’t a bad investment over the long run. I can’t say the same for telecom in Tanzania, though.

No sooner do you buy it than we give you a packet of handkerchiefs for the many tears you’ll cry.

References

1. https://www.sciencedirect.com/science/article/pii/S0306460321000307

The only thing that makes diamonds valuable is scarcity, and so this diamond is only available to the existing clients of my boutique fund, and for that reason, we’ll not share the name of this incredible opportunity here.

Buffett said it best: You need about one good investment decision every 5 years. What he didn’t say is the amount of work and soul searching it takes to get those good investment decisions

Investing in private businesses, not on the stock exchange, is not a new concept.

Legendary investors had to make purchases of companies not listed on the stock exchanges. With Buffett buying out companies like Duracell, See’s candies, Nebraska Furniture Mart, Clayton Homes, etc, Buffett has gone on to mention that Berkshire may not have been half the value it is today if they didn’t make these purchases that gave them more cash to invest.

Ive been grappling with the philosophy of unrealized capital gains as an opportunity cost, as elaborated in my last article, a concept, which could be helpful to my clients, where their capital gains could be put to good use to generate a minimum of 23.3% dividends, before capital gains, but then again, I seem to have developed an emotional attachement to the companies we already own shares in, due to the intensive research thrown into them, and the fact that I dont think that the reasons for investing in them have fully played out. I still believe we can get extremely good gains from them, and won’t therefore disturb those invested funds, but we’ll surf the wave. We shall therefore use new capital for the new opportunity.

With over 25 years in operation, 11,000 verifiable clients, and a price to book ratio of 0.25x, the company we are to invest in is way undervalued. In simple terms, for every UGX 1 shs of net asset value, you are paying UGX 0.25 shs to get it. This is the kind of company that would make Buffet and Munger go bonkers, as it has a 73.8% margin of safety, and the book value has historically grown at 41%.

For every UGX 1 shs retained in the business, the book value of the company increased by UGX 3.37 shs. At a purchase of about 10,000 shs per share, we are buying at a 73.8% margin of safety, as the liquidation value per share is about UGX 38,173 shs.

The Price to earnings ratio is approximately 1.04x, which is a justifiable price to pay for a 28.66% Return on Equity, which shows that management generates strong profits from shareholder capital.

While the Return on Invested capital of 24.41% demonstrates efficient deployment of funds, inclusive of retained earnings.

For every UGX 100 shs of shareholder capital, the company owes only UGX 9.70 shs to Centenary Bank. this is good because the company funds 91% of its operations from its own capital rather than borrowed money. this means that minimal interest expense eats into profits, and there is no vulnerability to external creditors. even during a large economic shock, the company won’t break loan covenant violations, or forced asset liquidation to repay creditors, or bankruptcy risk from debt servicing obligations

And best of all, the company has government tax exemptions under the Income Tax Act of 1997, amended in 2017, which means all profits generated are for shareholders, either as tax-free dividends or compounding as retained earnings, internally at a rate of 24.41%, which is, arguably, appealing.

We haven’t yet even got to the juicy bits of the steak.

With a dividend yield of 23.37%, it would take about only 4 years to recover invested money through dividends, assuming the yield remains constant, but the dividend yield won’t remain constant, because the company grows earnings at over 24%

With a dividend payout ratio of 31.3%, the book value, earnings, and dividends at current rates would grow at about 16.76% annually. Dividends would grow at the same rate of 16.76% if the company maintains the 31.3% dividend payout ratio.

This would indicate that it would take about 9 years for you to get your original investment as dividends. In a more simplified approach, if you invested 50M, in 9 years’ time, you’d be getting about 50M per year, given the current ratios, and assuming the growth continues.

Like Hank Greenberg likes to say, all I ask for is an unfair advantage.

MTN MoMo’s contribution to MTN Uganda’s profit has increased from roughly one‑quarter of group earnings in 2021 to about 45% of group profit by 31 December 2025, as the capital‑light fintech engine has grown faster than the traditional voice business.

At 6.7bn, impairment of trade receivables is about 0.6% of the 1.18tn MoMo revenue and just over 2% of MoMo profit after tax, which indicates there is a growing volume of BankTech exposure that includes Pay Borrow Invest, loans, savings, overdrafts, and Xtratime‑type products, flowing through receivables, with loans disbursed reaching 2.7tn, an 86.2% increase. this reflects greater customer appetite for borrowing via mobile, assuming there has been no material easing of MoMo lending regulations.

MTN Uganda carries the substantial network lease burden, while MoMo’s right‑of‑use assets fell by about 12%. MoMo’s property, plant, and equipment – point‑of‑sale devices, merchant terminals, signage, and IT hardware, increased by roughly 119%, signalling stepped‑up investment to support the expanding ecosystem.

this expansion has been underpinned by a 13.5% rise in agents and a 33.6% rise in merchants, together with the deployment of the enterprise merchant platform, agent applications, and the MoMo app, all of which require additional back‑end capacity and hardware.

MoMo depends on MTN Uganda’s network infrastructure, since most towers and spectrum sit at the MTNU level and are leased there rather than appearing in MoMo’s own property, plant, and equipment. MTNU carries the tower leases and related capex on the group balance sheet, while MoMo effectively pays for access to that infrastructure via intercompany network operating charges.

At 430 shs per share, you are paying a Price to Earnings multiple of 14x, and roughly 31x if you assume the entire 430 shs is being paid purely for MoMo and you ascribe no value to the legacy network, spectrum, voice, data, enterprise, and so on.

that framing is useful for investors who care only about MoMo and are sitting on the sidelines until the formal separation, but my view is that it is still preferable to own the shares before that separation takes place.

Another way to frame it is that you are paying about 5x price to book value for a business generating an exceptionally high return on equity of around 30%, with almost half of those earnings coming from MoMo.

Is that a cheap price? I would not describe it that way. Is it a price worth paying? That comes down entirely to the investor and their worldview.

Some investors assess companies purely through the financial statements, while others want to understand the underlying drivers of those numbers before they can justify paying a given price. Will the share price go lower? It appears to be trending that way. How much lower? I have no idea, and I am not in the business of calling the bottom.

What can I say, if you are not holding MTN shares at this point, even the Heavens can’t help you.

Even if you apply a fairly cautious stress to MoMo’s credit costs, where Expected Credit Loss effectively doubles again on top of an 86% loan‑book expansion, the impact would be only around a 2% reduction in group earnings, which on its own is unlikely to warrant a major de‑rating from a 14x group Price to Earnings multiple.

The more relevant risk premium for investors to think about is less the immediate Expected Credit Losses and more the tail‑risk around credit quality if the loan book continues compounding at this sort of pace for several years without a commensurate tightening in underwriting standards.

Momo Fy 2025 Extract

838KB ∙ PDF file

Download

Download

Mtn Uganda Limited Fy 2025 Earnings Release

3.2MB ∙ PDF file

Download

Download

This is considered cheap funding, If the bank has the ability to have a loan yield of about 11.5%, giving a spread of about 6.4% on loans, while the securities yield is about 15%, giving a spread of about 9.9% on the same deposits.

Remember, the spread is the difference between the deposits received and the way they are utilized to turn a profit.

With the above analysis, it would make more sense if the bank allotted more cash into government paper than into loans, but things aren’t always that simple because of regulatory requirements. The bank, for the last 4 years, has consistently allocated about 50% of the money into loans and about 35% of the money into government paper.

sticky, loyal money at below market cost, which the bank can recycle into very attractive yields with minimal credit leakage of 0.02%, should be considered a resource superiority, that is mostly exclusive to SACCOS, and hardly found in a bank.

Of course, the Actual net interest margin will be lower because the cheap non‑interest‑bearing current accounts fund part of the assets, and there is interest expense on borrowings, but you get the picture.

If Return On Equity stays about 18%, the retained earnings of about 43% can grow equity per share at about 8% a year, which is less explosive but very respectable for a bank with near‑zero Non Performing Loans, and frankly, hard to find in any other banks This makes me think that Baroda’s ‘referral‑only SACCO’ model scales, and we are not seeing diminishing marginal returns any time soon.

At what asset size will Baroda be forced to relax its entry criteria and accept more average borrowers? And when that happens, does the 0.03% magic Non-Performing Loans ratio survive?

So far, growth has not diluted credit quality. Non-Performing Loans are even lower, at about 342m on a 1.6tn loan book, suggesting that either the referral filter is still working and management is deliberately choosing liquidity and securities over aggressive loan expansion when good borrowers are scarce.

Kakande’s Substack

When is the Next Baroda stock Boom?

We are due for a dividend increase from Bank of Baroda Uganda. At the current price of 22.25 shillings per share, the dividend yield is approximately 8.9% per year; however, this is likely to change…

Read more

2 years ago · 23 likes · 4 comments · Gitta Expedito

The title, When is the next Baroda stock boom is more of a rhetorical question, with an undefined answer. No one knows the exact time a boom starts and when it stops. A good analyst may be halfway correct, but the world isn’t static, and everything keeps changing. ratios change, numbers change, management changes, with the only constant being the irrationality of management and investors, and fresh eyes are needed for perspective.

BOBU’s real edge is the absence of mistakes rather than operational brilliance. In 2025, the cost line grew by 9.7% with income growing by 9.6%, but the provision line shrank, letting more revenue drop straight to the bottom line. as the credit cost collapses and the provisional charges drop by 71% Year on year, from shs 9.7Bn to shs 2.8Bn, there is more balance sheet arbitrage through cheap deposits, Bank of Uganda repo’s and government paper, but it is funded by genuine deposit growth, not wholesale funding spikes, as cash with Bank of Uganda under repo is 219.8Bn, and customer deposits grew by 14.3% or about 316Bn.

makes me wonder how much of that is from fintechs like MTN Momo, seeing that all their deposits are spread out with banks?

Either way, as shareholders in both institutions, we get to enjoy the benefits.

Given that Baroda has increased dividends by 200%, within the last 2 years, and pushed payout above its historical 30% ‘comfort zone’, to about 57%, is the next 3 to 4 year play about earnings compounding into this new dividend base? Or should investors expect a period of Dividend Per Share consolidation while earnings per share catch up?

This is considered cheap funding. If the bank has the ability to have a loan yield of about 11.5%, giving a spread of about 6.4% on loans, while the securities yield is about 15%, giving a spread of about 9.9% on the same deposits. It is thus no surprise that for every 1 shilling retained, Baroda Uganda has produced roughly 2 shillings of market value for shareholders over the last five years.

A buy-side analyst will always have fewer figures to work with compared to a sell-side analyst. The analysts in brokerages and banks want you to buy, so the data is skewed to your making a purchase decision, while the analyst on the outside has to look for the data. This may not be true for extremely large investors because of the premium information they get.

The advantage I’ve come about after reading the financials of different banks in East Africa over and over again is that investment opportunities have started appearing everywhere I look. Before then, I just couldn’t bring myself to see. Would it surprise you that we have found other investments with as impressive growth ratios as Baroda? Such companies are goldmines. Guess I’ll be talking about it here about 36 months from now, after we have accumulated lots of shares for the fund’s clients and accumulated significant gains.

I would have called BOBU a forever hold, but a friend of mine, an exceptional investor at that, would cringe at reading those words (and he always reads my pieces), where he thinks that investments should always be evaluated based on the alternatives one can do with the money.

A debate I’ve always fancied, while discussing with him, is based on dividends at cost. If you bought Baroda at 15 shs a share, which is the price we started accumulating at, then by the end of August, we would have recovered 80% of the original cost through dividends, and the remaining 20% would be recoverable within half a year, at the going rate of 6shs per share dividend. From that point on, every dividend cheque is effectively being paid on zero-cost capital, and our yield on original cost is already 40% and rising. We are also sitting on capital gains of 260% on the starting purchase price.

One side of the argument is to sit and enjoy the increasing dividends to the point where one gets the initial amount of investment as dividends per year. The other side of the same coin is to liquidate everything at these all-time highs and invest in the next big undervalued companies, and from current research, a few good options have crossed our radar.

On the ‘Buffett–Coca‑Cola holding’ side, the Baroda position is becoming exactly the kind of asset we don’t want to disturb. If Baroda’s earnings and dividends keep compounding, we could reach a point where our annual dividend exceeds our initial 15 shilling entry cost, just as Buffett now collects millions of dollars a year from Coca‑Cola on a stake that long ago ‘paid for itself’ in dividends alone.

Selling a position like that just because the chart shows an all‑time high risks losing an asset that can keep throwing off cash for decades, and we may never find another business of similar quality, governance, and predictability at such a favourable entry multiple.

As Buffett has admitted, his biggest errors have often been selling great businesses too early, not holding them too long.

On the other side of the argument, our Baroda stake is now sitting on roughly 260% capital gains, with a current share price of 54 shs versus a 15 shs starting entry cost, before counting the 12 shillings to, and already received in dividends by August this year.

That embedded gain is real purchasing power we could convert today into a larger capital base, then redeploy into the next undervalued companies on our radar.

In this framing, and according to my friend, unrealised gains are an opportunity cost. If the stock has re-rated closer to fair value and the prospective return from here is, say, high single digits, reallocating into names trading below earnings with room to re‑rate could generate significantly more cash over the next decade than simply sitting tight. Buffett himself has sold or trimmed wonderful holdings when the incremental return on that capital looked clearly inferior to what he could earn elsewhere, with Apple being a recent example. And he’s clear that

the best business is one that can employ new capital at high rates, not just one that has been great historically. In my case, crystallising Baroda’s gain and rotating part of it into other high‑conviction, under‑owned financial institutions might shorten the time it takes to reach our goals. So the debate comes down to a trade-off. Can I prize the psychological and economic comfort of owning a “Coke‑like” compounding machine that is on its way to paying our original stake back every year, or do I treat even that great asset as inventory? As something to be sold when the expected forward return from holding it is meaningfully lower than we can get from the next mispriced opportunity.

A rational policy for us might be to sit in the middle by protecting the core of this low‑cost, high‑yield Baroda position through honouring the Buffett side of our temperament, while being willing to trim at the margin to seed new ideas when they genuinely offer clearly superior long‑term economics after fees, taxes and execution risk, which my friend has gone on to do, by selling a significant portion to the optimists.

How does one know when it’s time? Well, the young investor knows the rules. The experienced investor knows the exceptions to the rules.

I’ve seen some other businesses with impressive balance sheets, and frankly, I’m itching to allocate them some money

Now, I have to understand that he did the analysis during COVID, a period in which businesses were shocked, and the Bralirwa share price went tumbling down to lows way below the IPO price.

To some, the experience was unfortunate, but their sadness created an opportunity of a lifetime for others.

The 1% net profit margin he highlighted in 2019 has expanded more than 10x, to reach 16.3% in 2025, and the gap between EBIT and net margin has narrowed substantially. His statement that Bralirwa was not generating enough profit per unit of sales is no longer true.

Arsene’s conclusion to avoid buying Bralirwa in size looks understandable in 2019, but deeply wrong once we include what actually happened from 2020 onwards.

He froze the world in 2019 through multiples and earnings and projected that state forward, instead of asking himself if that was the bottom of the cycle.

His statement in 2019, that “it would take 21–109 years to make your money back if nothing changes,” is technically true in a static world, but utterly unrealistic for a cyclical recovery case, as he ignored the earnings per share growth potential. Since then, earnings have grown by 40% per year, or a whooping 3,489.655% within 7 years.

Arsene compares a snapshot equity yield, based on bottom earnings, to a long‑term bond‑type compounding rate without modelling Earnings Per Share recovery, dividend growth, or capital gains, when he says in 2019 that “It’s Better to put the money in an 8% savings account.”

If you had bought them then, at 140, your cash dividends on purchase price, ignoring capital gains, would be 29% per year, which is way above the 8% that Arsene recommended, by about 3.6 times

With a formal 100% payout practice, a profit shock would automatically shrink Dividends Per Share as there’s no buffer from retained earnings in this year and last year.

Because of a 100% profit payout to shareholders, the company has retained almost nothing for the past few years. The retained earnings of 2024 have grown by 9.1% to reach 69.1 Bn RWF in 2025. These reserves have supported equity growth and Net Asset Value gains. These earnings were retained in prior years, such as 2016, 2017, and 2018, and they have compounded internally in the company since then

The biggest risk for shareholders would be a sustained sharp RWF depreciation that outpaces pricing power, destroying real returns

Malt, hops, and packaging are imported and USD or EUR‑linked. RWF depreciation of about 13.82% within 2 years, where about 9.4% was recorded in 2024, and about 4.40% in 2025, raised the cost of sales and hurt gross margin.

The foreign‑currency loans re‑measured at weaker RWF produced FX losses in finance costs, contributing to the high net finance cost in 2022–2023 and moderating in 2025 as overdrafts fell.

​Bralirwa has offset this with pricing, premium mix, and cost control, which is why net margins still rose despite FX headwinds.

Revenue has grown at a compound annual growth rate of 20% from 2021 to 2025, rising from RWF 123.6Bn to RWF 263Bn.

Net profit after tax has grown at a 24% compound annual growth rate over the same period, increasing from RWF 17.5Bn to RWF 42.8Bn.

Dividend per share has also grown at a 24% compound annual growth rate, rising from RWF 17.03Bn to RWF 41.63Bn.

Because of such impressive margins, the share prices have grown at rates faster than the earnings per share, and existing shareholders need to evaluate their holding positions while reviewing the different investment options available to them.

The dividends per share are growing at about 25% per year over this period, and your yield on cost explodes as long as you bought earlier.

For each 1 RWF paid out over this period, shareholders have 1 RWF in cash, plus a claim on a larger per‑share earnings base supported by the same stock of equity.

Investors never worry that management will retain earnings at mediocre returns and sit on low‑yield assets

As for price-to-earnings ratios, the company has never been really cheap. In this case, cheap is subjective.

Between 2016 and 2019, revenue was stuck between 88 and 101bn, while net finance costs were between 7 and 10bn, which is about 10% of revenue. With operating profits only in the low‑teens, finance + tax essentially eat the business.

From 2020 to 2025, revenue and margins rise so much that finance cost becomes about 5% of revenue, and the Profits & Loss financials stop being funding‑constrained. Interest & FX were the choke point, and once that was solved, everything else looked different.

deferred tax lets Bralirwa report higher Net Profits After Tax now while shifting some tax into the future, which supports high payout and capital expenditures simultaneously. Management chose to reinvest in selling & distribution, marketing, capacity at the Rubavu line, and digitalisation, which caps margins while expanding the profit pool and franchise depth.

Finance costs and FX could have pushed margins higher if they cut back investment, but they didn’t, causing the Net margin to plateau at around 17%.

At our purchase price as a fund, we are sitting on +124% unrealised capital gain per share, before dividends.

We earn about 20% of our original investment in cash every year, at the current dividend level. 62.5% of our purchase price has already been paid back in cash

It’ll take us 2 more dividend years at the present level to have recouped our entire 205 RWF per share in dividends, while still owning the shares

As I like to ask my clients

How long do you think it’ll take before the company you have invested in starts to give you back that initial money invested as dividends per year? My answer has always been, a shorter time than you think, a longer time than you’d like.

We estimate that it’ll take us about 10 years in Bralirwa to earn our initial investment as dividends per year.

If you think 10 years is so far away, I’d like to remind you that 2016 is just a memory away. Just like yesterday, with memories still fresh in your mind.

References.

1. https://www.academia.edu/43772877/ANALYSIS_OF_FINANCIAL_STATEMENTS_OF_BRALIRWA_LTD_TO_EXAMINE_ITS_WORTHINESS_FOR_EQUITY_AND_DEBT_FINANCING_FIN_6000_A_Managerial_Finance_Paper

1765653928 C3c32a5e0a9dc7ef1a41

281KB ∙ PDF file

Download

Download

Rw Blr 2021 Ab 00

436KB ∙ PDF file

Download

Download

Bralirwa Plc Audited Full Year Financial Results For The Period Ending 31 December 2023

1.52MB ∙ PDF file

Download

Download

310320264522bralirwa Plc Full Year Audited Financial Result 2025

1.96MB ∙ PDF file

Download

Download

However, in the first read, some things stood out to me that I try to ponder here in depth.

Under Trust account balances or mobile money deposits, on page 54, there’s a statement that says

“MoMo customers’ balances (held on escrow accounts)” and another statement saying that

“The Group recognises MoMo balances held by the respective banks and the customers’ rights to these balances as an obligation (financial liability) in the ordinary course to repay the balances to the MoMo customers and a right to claim the corresponding amounts from the relevant banks (financial asset).”

This is roughly UGX 1,459.5 billion as at 31 Dec 2025, with a matching liability to customers.

Cash flows for the principal balances are not shown in MTN’s operating cash flows, and only the interest received or paid appears.

This is the standard Ugandan mobile money trust structure under the National Payment Systems Act. This means that MoMo trust accounts are large pooled deposits in the name of the trust, not direct insured deposits by each end-user.

No public breakdown of banks is given for the roughly UGX 1.46 trillion float in the separate banks. Possibly the top 4 banks in the country, namely, and I estimate, Stanbic, Centenary, ABSA, and Equity Bank, have the money.

The scenario can be that either all banks have an equal share of this amount, or, as history says, some banks have more than others. The world is not fair. We all can’t have the same height or weight. Yes, we may all have 32 teeth, but it doesn’t mean we are the same.

Financial institutions may be called banks, but they don’t all have the same weight in assets, revenue and profitability

As George Orwell said in Animal Farm, some animals are more equal than others

I therefore have reason to believe that Stanbic cannot have the same share of this float as Opportunity Bank, Tropical Bank, or Guaranty Trust Bank.

Unlike the above-named financial institutions, Stanbic has built a rather special, unique relationship with MTN, where they took them public in 2021, and their second IPO in 2024, and syndicated loan facilities. One can’t ignore the fact that Stanbic may most likely still be the one to lead the separation of MOMO from MTN Uganda. This, coupled with the fact that they are the largest bank in the country, makes me believe they have the largest market share of this float.

And I’ve not talked about the special relationship the Standard Bank Group has with the MTN group, given that they are from the same neighbourhood, South Africa, where the group chairmen usually bump into each other on random golf evenings.

MTN deliberately omits any bank names as standard practice for commercial sensitivity and to avoid concentration signalling. It does create information asymmetry, as customers and analysts cannot sniff around the financials and quantify exposure to any single bank

Uganda’s Deposit Protection Fund (up to UGX 10 million per depositor)

The Deposit Protection Fund (DPF) protects individual retail deposits in licensed banks up to UGX 10 million per depositor per institution.

MoMo balances are pooled trust accounts held in the name of MTN Mobile Money (U) Limited (one legal entity), not in individual customers’ names.

Protection for MoMo customers comes instead from the ring-fencing requirement under the National Payment Systems Act, where the funds must be kept segregated and invested in highly liquid assets such as Government of Uganda treasury bills or bonds. In a failure scenario, customers are reimbursed in full from those ring-fenced assets.

As at 31st December, MTN mobile money balances stood at UGX 1.46 trillion. The banks use those cash balances for loans and trading in securities. Once the funds sit in the commercial banks’ escrow or trust accounts, they become part of the banks’ overall deposit base.

Banks are allowed to lend or invest them, probably subject to Bank of Uganda liquidity and reserve requirements, plus the ring-fencing rule that the MoMo-specific portion must be kept in liquid instruments.

In practice, large wholesale or trust deposits that banks receive are routinely used for Corporate and retail lending, Investment in government securities such as T-bills, bonds, and finally, Inter-bank lending and trading activities

Bank Failures

If one of the undisclosed partner banks holding the MoMo trust accounts were to fail tomorrow, it wouldn’t be all tears for the existing MoMo clients.

It will not be a ripple of failures and tears as with the 2008 banking crisis in some other countries.

MTN Mobile Money (U) Ltd, though, would not immediately repay customers from its own balance sheet. The trust accounts, being ring-fenced assets, mean that customers would face potential delays while the trust recovers funds from the failed bank’s resolution process, as Bank of Uganda would step in under bank-resolution rules.

That proverbial bazooka of the massive unrestricted financial bailout package waved around by Henry Paulson, the US Treasury secretary, in the 2008 banking crisis, would come to play here in uganda as well. Only this time, it’ll be waived around by Dr. Michael Atingi Ego, our Governer for Bank of Uganda, or so we hope, as shareholders.

The 2025 report contains no specific stress-test disclosure for this scenario, as the Bank of Uganda has never publicly released a MoMo-specific stress test.

MTN shareholders have no way of knowing if a Momo stress test has been conducted in the same way that commercial banks undergo stress tests to ensure strength. Arguably, MOMO should undergo liquidity stress testing and counterparty credit risks, given that it handles more cash than some banks combined.

MTN runs a de facto deposit-taking business with lighter rules. It pays about 2% on float and banks capture the full spread as they invest the float in their banking activities, faces no deposit-insurance premiums, and has lower capital requirements than banks. Bank of Uganda’s National Payment Systems Act requires only ring-fencing and segregation. It does not impose full Interest Rate Risk in the Banking Book or liquidity coverage ratios on the trust.

The regulator has not forced alignment with bank standards despite MoMo’s systemic size of UGX 1.46 trillion, which is about 18% of Stanbic’s deposits alone, or about 62% of Bank of Baroda’s deposits, as per their last financials of 2024

MTN classified all Momo deposits as current, meaning MTN must be ready to pay out instantly, but the cash is already sitting in the banks’ trust accounts, hence protecting themselves from a proverbial run on the bank, which would instigate massive withdrawals.

This is genius, as it prevents massive failure of the institution, but makes a shareholder wonder, how much more money Momo could generate for the shareholder, if they kept this money on their own accounts, and invested it in the fixed income alternatives, other than gifting it to banks, to make a fortune

documents attached for your review, and interesting opinions

Consolidated Financial Statements (1)

8.72MB ∙ PDF file

Download

Download

For every Ugx 1 shs retained and not paid as dividends in 2025, Stanbic Uganda Holdings created Ugx 4.67 shs in extra shareholder value. Equity Bank would kill for just a third of this. In the companies listed in East Africa, an investor would struggle to find 5 with such an impressive result.

Value creation in retained earnings can be eroded, though, if there is a sharp rise in non-performing loans, as it would force higher impairment charges and eat into the much-loved retained earnings, or the currency risk, because about 40.7% of deposits and 27.8% of loans are forex. A large Ugx depreciation or imported inflation spike could hurt net interest margins and create translation losses, especially now with the wars in the Middle East, which have significantly led the UGX to depreciate against the USD.

Higher revenues, lower taxes

The effective tax rate fell sharply from 26.6 % to 20.5 % while profit before tax rose 14.2 %.

Cash taxes paid, from the cash-flow statement, fell from Ugx 188.58 bn to Ugx 169.97 bn.

Management explains that the reason for this is simply taking advantage of the unique aspects the law brings, where they allocate a large portion of the money into longer-term government debt, with low withholding tax rates of around 10%.

Remember, long term bonds say 20 years attract 10% on withholding taxes, while short term government debt attracts 20% withholding taxes

The ingenuity of the finance team, here, has to be appreciated, as it saved shareholders UGX 11 Bn shs. However, it is exactly the incentive the government built into the law to encourage long-term financing of public infrastructure, which has resulted in a bigger chunk of the incremental interest income. the 14.2 % Profit Before Tax growth is taxed at half the previous rate. That directly pulls the overall Effective Tax Rate down from 26.6% to 20.5%.

The bank-level income statement shows this clearly

Marketable/trading securities, that includes government Treasury bonds & bills jumped almost 50 % and now contribute a much larger slice of total interest revenue, which is exactly the large portion of the money allocated into longer-term government debt that management described.

Net trading income increased by 25 %, from Ugx 304 bn to Ugx 380 bn, which frequently includes realised gains on the bond portfolio.

The dividend payout ratio is about 60.9%, and the dividends are sustainable, as the retained earnings of 39.1 % are still enough to support 16.4 % loan growth and 10.9 % asset growth. A 23% Capital Adequacy Ratio and 26.8% Return on Equity mean that the bank could even increase dividends further without jeopardising growth.

How much value did non-interest revenue add

Non-interest revenue in banks consists of account maintenance fees, overdraft penalties, insurance fees, withdrawal charges... in short, any amount earned without charging interest on lending money.

Non-interest revenue grew 21.1 % to UGX 651.245 bn and now makes up 45.2 % of total income, up from 41.4 %, with the net trading income alone jumping +25 % from 304 bn to 380 bn. Net fees and commissions rose from 208.8bn to 236.0bn, but FX income fell from 111.6bn to 94.1bn

This diversification reduced reliance on net interest income and is a key reason Return On Equity rose from 24.3 % to 26.8 %.

The over-capitalization of Stanbic

Stanbic Uganda Holdings has one of the strongest capital positions among banks in Uganda. Bank of Uganda regulations require tier one banks to have a total capital ratio of only about 14.5%

Stanbic has about UGX 800 billion of excess core capital

The bank’s core capital grew faster than Risk Weighted Assets, as the ratio improved even while the bank expanded loans +16.4% and total assets +10.9%.

This gives confidence to shareholders that the bank can absorb very large forex hits, without breaching regulations, especially now that the UGX has been depreciating rapidly against the dollar.

Excess capital is usually held with the central bank at low returns. Lucky for us, the return on equity is at 26.8%, increasing from 24.3% because of the shift the finance and management team made, of fixing the money into long-term government bonds with lower tax rates of about 10%

Intelligent and non-intelligent use of deposits by management

Customer deposits grew by 12.9%, from 7.11tn to 8.03tn, but interest expense on deposits rose by 57.2%, from 66.1bn to 103.9bn. Which means that they paid meaningfully higher rates on the incremental deposits from customers.

This can be justified as the deposit base grew by 13 %, and they used it to grow higher-margin assets. The extra deposit funding was deliberately allocated to higher-yielding assets such as loans and government securities, more than offsetting the 57 % rise in deposit expense. This is broken down into Loans and advances to customers & banks, which grew by UShs 764 billion, Financial investments and trading assets, which grew by UShs 560 billion combined, and Interest income from trading securities, which jumped +48.4 % from Ugx 192.7 bn to UGX 285.97 bn.

The costs rose because of the mix shift toward higher-rate term deposits and savings products needed to lock in longer-term funding.

To answer why, despite compounding profits, expanding across Africa, and earning a 22% “social return”, Equity is still not converting retained earnings into equivalent shareholder value? I, hopefully, figure that you may come to the conclusion of the answer by the end of the article

Within the last 5 years, Equity Group holdings has increased revenues by about 132%, assets by about 60%, Loans by about 85%, deposits by about 96%, customers by about 50%, Equity by about 111% and profit after tax by a whooping 315% which is about 63% per year.

Equity group 5 year total return is 168.1%, which rounds up to about 33.62% per year.

The one year total return is 80.4%, which amounts to about 6.7% per month.

In Quarter 1, the non performing loans peaked at 14.0%, but management was able to counter that, and reduce the ratios to about 10.5% by end of year, while the net loans grew to KES 882.5Bn.

2025 Performance Metrics.

In 2025, Equity’s three-part model of doing business delivered a 22% “social return”, where the money and effort it puts into helping customers and communities pays back strongly in business terms. Over 2024–2025, it spent about KES 89.5 billion on social and development programmes, and this helped push fee and other non‑interest income up to 44% of total revenue while keeping its customer base large and steady at more than 22 million people. those social investments deepened customer loyalty and trust so much that they likely generated around KES 20 billion in extra fee income and cheaper funding, with the bank’s average funding cost dropping to roughly 3.5%.

Unlike traditional corporate-focused peers like KCB, Stanbic, or Absa, it pioneered banking the unbanked and SMEs since the early 2000s, abolishing minimum balances, building massive agent networks, and created the Tri-engine model which is commercial engine + social engine via Equity Group Foundation + sustainability engine for ESG.

in Kenya, where Equity is widely viewed as “the people’s bank.” Customers describe it as a partner that “solves any problem” and empowers the previously excluded. Loyalty stems from convenience through the huge agent and ATM network, Corporate Social Responsibility, through education and health programs reaching millions, and consistent service, even during macro challenges. In kenya,they disbursed 45% of national Micro, Small and Medium enterprises loans through January to July 2025, with over 212+ branches and more than 42,000 agents

In uganda though, there is intense competition from local banks such as housing finance bank, which also have no minimum balances on client accounts, and no monthly bank charges on personal accounts. (based on personal experiences. I may not know about other experiences). Customers in Uganda have mixed experiences, such as issues that go unresolved for ages, and money that continuously vanishes in customer accounts.These are more pronounced in Uganda, than in its stronger markets such as Kenya and DRC, due to a mix of internal fraud fallout, slower resolution processes, and perceived arrogance in handling disputes.

However, the bank is actively addressing them through group-wide integrity cleanups and maintains solid financial growth. In 2025, Equity Group extended its Kenya-led integrity audit to Uganda where Nearly 200 staff were fired (part of a group-wide purge of over 1,200 employees). This followed a UGX 65 billion unsecured loan fraud scheme via the Eazzy Stock digital platform (2018–2024), which caused an UGX 18.8 billion loss in 2023. Additional cases involved agent financing fraud of about USD 16.7 million and other insider schemes.

Q3 2025 showed +61% Profit growth in Uganda though, strong loan growth, and NPL ratio down sharply to 8.8%, which is one of the best improvements in equity group. With over 5,000+ Equity duuka agents, and 44+ branches, they remain resilient despite the fact that Ugandans trust them less, a bad reputation for a bank to have.

The above shows that the Uganda issues and social-media noise are real but financially immaterial at group level

If Uganda’s fraud cleanup and unresolved social-media complaints caused a 10–15% deposit outflow in Uganda’s subsidiary, 2025 group Return on Equity would have been about 26% instead of about 28%, and pushed leverage from 6.7× to about 6.9×. Yet, despite all the 2025 drama, deposits still grew +4% group-wide and Uganda Profit After Tax surged +61%, as evidenced in the 3rd Quarter 2025 report showing a 9 month cumulative growth result.

Their dominance in DRC is because they acquired an established local institution, and the increasing mining boom.

One number hides the beauty of the portfolio effect.

Equity Bank DRC carries higher implicit risk through forex volatility, hyperinflation accounting elsewhere like South Sudan. 2025 group Non Performing Loans fell to 10.5% because DRC’s local Non Performing Loans improved sharply through credit guarantees + recoveries. Provisions dropped group-wide by more than 30% Year on Year, but DRC’s share of the drop was outsized, thus management saying that (“regional diversification paid off”). the consolidated view masks that DRC Return On Equity is probably 2% to 3% lower than Kenya’s due to risk, but the diversification lollapalooza still lifts overall Return On Equity.

In rwanda, they are the second largest, but still far away from overtaking Bank of Kigali.

After the 2023 merger with Cogebanque, Equity ranks number 2 in total assets and profitability, number 1 in customer base having about 1.5 million customers, rapid growth where loans gre +34% in Q3 2025 group view, assets by +28% historically, low Non Performing Loans of about 4.1%, and strong digital innovation through their own wallet, AI credit and data center. It leads in some segments such as SMEs, trade finance ambitions, refugees/MSMEs. But, Bank of Kigali remains the dominant leader with about 35%+ market share implied from prior charts, a larger balance sheet and established position, based on attachment from locals.

Equity is closing the gap, in Rwanda via The Africa Recovery and Resilience Plan In Action targets, aiming at 5.3 million Rwandan customers, 65% MSME loans, and 30% agriculture by 2030, customer obsession, and group backing. Management sees it as a “systemic bank” with “customer obsession that sets us apart.”

If Equity hits its Africa Recovery and Resilience Plan In Action 100-million-customer target by 2030 at current 2025 efficiency levels, normalized Return On Equitymay reach highs of 35%+ and revenues, of about KES 700 bn, implying that this is the kind of business that gets better every year once the cycle turns.

In time, within Rwanda, it may seriously rival and lead in inclusion segments if execution continues, especially with Rwanda’s high GDP growth of about 8%+.

At a good enough price, and a long enough period, the shareholder can withstand any political and economic shocks, because of the diversification of the bank, at the East African level.

MTN’s borrowings vs Ugandan banks

For four years after IPO, MTN was a net repayer of borrowings, then swung to a sizeable net drawer in 2025. MTN is using debt largely as a corporate funding lever (capex, spectrum, taxes, dividend smoothing), not as a matched loan book, so the economic role is still different from a bank’s intermediation role.

In terms of flow size, a 222b annual draw is meaningful relative to mid‑tier banks’ Profit & Loss financials. For example, it is about 2–3x dfcu’s annual interest expense, but banks’ deposit bases and risk‑weighted assets still dwarf MTN’s on‑balance‑sheet funding. In fact, Stanbic Uganda’s Half year, 2025 results show customer deposits of about 8.4tn, far above MTN’s incremental debt draw

MTN Uganda debt cash‑flow profile

From the consolidated cash flows and all figures are in UGX billions

MoMo interest rate vs banks, 2021–2025

We don’t have the disclosed average MoMo float, but we can bound it.

Fintech/ MoMo revenue is 947.5b in 2024 and 1,111.7b in 2025.

Given national scale, it is reasonable that the aggregate MoMo float sits in the 1.5–2.5tn range over 2022–2025 which is consistent with how much fee and advanced‑services revenue they generate vs typical yield spreads in Uganda.

Using that ballpark:

2022: 20.7b ÷ 1.0–1.5tn ⇒ approximately 1.4–2.1% as implied yield.​

2023: 42.4b ÷ 1.5–2.0tn ⇒ approximately 2.1–2.8% as implied yield.​

2024: 39.6b ÷ 1.7–2.2tn ⇒ approximately 1.8–2.3% as implied yield.​

2025: 37.1b ÷ 1.8–2.4tn ⇒ approximately 1.5–2.1% as implied yield.​

So MoMo balances earn something around 2% per annum, give or take 0.5–1 percentage points.

MTN: interest paid on mobile money / trust balances From the cash flows

Banks: deposit rates

Tariffs and disclosures for the main retail banks indicate that

Basic savings accounts often pay 0.75–2% p.a. on low balances. some “premium” or special savings and current accounts pay approximately 4%.​

Weighted average cost of customer deposits for banks like Centenary is around 2% over a cycle.​

So:

MTN’s MoMo rate is broadly in line with a mass‑market savings account, below “special” or term products, and far below T‑bills or fixed deposits.

Economically for a retail user:

For yield, a bank term deposit or T‑bill clearly dominates.

For frictionless liquidity and payments integration, MoMo dominates, and the forgone yield is the implicit “fee” for that convenience.

MoMo “net interest margin” vs banks

To approximate a MoMo‑style “spread”, we define

“Interest expense” as interest paid on MoMo and trust balances.

“Interest‑like income” as fintech revenue minus pure payment fees, but in aggregate you can benchmark against total fintech revenue as an upper bound.

In 2024 and 2025:

Fintech revenue: 947.5b (2024) and 1,111.7b (2025).

MoMo interest paid: 39.6b and 37.1b respectively.

Upper‑bound MoMo “margin” vs float:

If float is approximately 2tn and fintech revenue approximately 1.1tn, gross fintech yield is approximately 55% on float. net of interest paid, still approximates 53–54%.​

This is obviously not a pure Net Interest Margin. most of this is fee‑for‑service (P2P, cash‑out, merchant, advanced services) rather than interest on assets.

Compared to dfcu:

Net interest income approximates 256b on average interest‑earning assets in the low‑trillion range implies Net Interest Margin of maybe 8–10%, depending on asset mix.

So:

MTN’s MoMo business is an extremely high‑margin fee platform layered on top of float, not a narrow‑spread lending book like a bank, and Thank God, regulators will likely continue to treat it differently.

Dividend policy vs systemic role

Dividend cash flows since IPO:

Payout vs accounting year profit. cash flow can lag by a few months.

Management explicitly targets a minimum 60% payout of distributable income. actual payout has been approximately 70–80% historically, 2025 is temporarily lower if you use adjusted PAT (post tax settlement).

Which is a high payout for an entity whose fintech operations underpin national payments and savings. it structurally limits organic capital build‑up in Uganda.

Thought‑experiment

If payout since 2021 had been 60% instead of around 80%, cumulative extra retained earnings would be roughly 150–200b by 2024 and another roughly 150b in 2025, adding maybe 300–350b to equity.

That incremental capital could have funded more spectrum, rural coverage, or provided a larger buffer for regulatory or tax shocks.

So at the margin, MTN Group is extracting substantial cash from a systemically important payments platform, which this is consistent with its listed‑telco profile

Per‑customer economics and inclusion

2025 KPIs

24.2m total subscribers.​

14.7m fintech subscribers, up 6.5% YoY.​

Fintech revenue 1.11tn, MoMo interest paid 37.1b.​

Rough per‑active‑fintech‑user metrics for 2025

Revenue per fintech user approximately 1.11tn / 14.7m which gives about 75.5k UGX per year which gives about 6.3k per month.​

Interest paid per fintech user approximately 37.1b / 14.7m which gives 2.5k UGX per year which gives about 210 shs per month.​

Interpretation

A typical MoMo user “earns” very little interest relative to the fees and spreads the platform captures from their flows. this is more like a payments wallet with a minimally remunerated float than a savings product.

Although, Low‑balance customers still benefit from convenience and micro‑savings access, but the real financial return is modest. in a bank savings account they might earn similar nominal interest but with less fee drag on transactions.

There is likely cross‑subsidy

High‑transaction, low‑balance users generate a lot of fee income but hold little float.

High‑balance, low‑transaction users provide cheap float and receive a modest interest share.

Banks have similar cross‑subsidies, but they are constrained by deposit‑rate competition, deposit insurance rules, and more detailed Interest Rate Risk in the Banking Book oversight.

MoMo vs Banking deposit insurance or counterparty risk

Structure

Customer MoMo balances are legally claims on MTN’s licensed payments entity (MTN MoMo), backed by trust accounts placed with regulated banks under the National Payment Systems Act framework.​

Deposit insurance (Deposit Protection Fund) in Uganda covers eligible bank deposits up to 10m UGX per depositor per member institution; MoMo trust accounts are large pooled deposits in the name of the trust, not direct insured deposits by each end‑user.

If a partner bank failed

The trust’s exposure to that bank would be subject to resolution. customers could face a delay while the trust recovers funds, even though in principle the funds are segregated and should not fall into the bank’s estate.

A direct bank depositor is clearly covered up to the insured amount and then participates as a creditor. the time of recovery, undefined.

Economic implication:

For small balances (<10m) held in a single bank, deposit insurance gives a clearer statutory backstop than the MoMo trust structure.

From a diversification angle, the MoMo trust typically splits float across several banks, so a small retail user may actually be indirectly spread across multiple banks and less exposed to any one failure, but without direct insurance in their own name. This, however is theoretical, and im not certain, its what is done in practice.

MTN’s Tax Burden

Over 2021–2025, MTN’s tax contribution increasingly behaved like a quasi‑regulated “take” on sector cash flows, rather than a cyclical corporate tax charge

using 2021–2025

Profit after tax (PAT) rose from 340.4b (2021) to 678.8b (2025).

Income tax expense rose from 150.5b (2021) to 455.9b (2025), with 2025

including a 110.9b once‑off URA settlement for 2012–2024 transfer pricing.

“Total tax contribution” (direct + indirect) grew from 839b (2021) to 927b (2022), 1.1tn (2023) and 1.3tn (2024), then 1.6tn in 2025.

As a share of service revenue

2021: taxes 0.84tn vs service revenue 2.04tn

2024: taxes 1.3tn vs service revenue 3.17tn

2025: taxes 1.6tn vs service revenue 3.57tn

Implication:

The fiscal take has been remarkably stable at approximately 40–45% of service revenue, despite macro and regulatory changes, which is more “utility‑like” than cyclical.

MTN’s tower book as a REIT

If you isolate the lease‑driven economics, such as the tower and site leases, MTN’s lease liability and cash outflow profile, can be close to that of a standalone Ugandan tower REIT?

(2021–2025):

Lease liabilities: 732.2b (2021) → 1,145.2b (2022) → 1,145.4b (2023) → 1,367.1b (2024; combining current and non‑current) → 1,498.1b (2025).

Lease interest + principal cash outflows:

• 2021: interest 115.0b, principal 79.3b → 194.4b.​

• 2022: 141.1b + 220.8b = 361.9b.​

• 2023: 185.1b + 129.0b = 314.1b.​

• 2024: 214.2b + 164.2b = 378.4b.​

• 2025: 231.6b + 203.2b = 434.8b.​

If you view the lease liability as “debt secured on passive infrastructure” and the recurring lease outflow as a coupon

The Lease “yield” will be equivalent to 15.7% (2021) vs 15.5% (2025).

This is a very rich implied yield compared to a classic REIT structure in developed markets, reflecting Uganda risk and the outsourced nature of these assets.

MTN’s P&L embeds something very close to a high‑yield tower REIT inside a telco. think of MTN leases as an asset‑light operator and the lease book as a shadow infrastructure fund earning mid‑teens yields paid out of MTN’s operating cash.

medium-term financial projections (FY2026-2028) based on management guidance from the FY2025 earnings release

There is no evidence of BATU acquiring other companies, launching non‑tobacco subsidiaries, or diversifying into new categories.

The business remains a pure cigarette trading and distribution company. As far as research informs us, there is no internal “beyond nicotine” pivot. Group‑level BAT talks about a multi‑category, “Better Tomorrow” transformation and investing via Btomorrow Ventures, but these moves sit in London and large end‑markets.

Capex and working‑capital investment have stayed modest relative to cash flow, while the dividend payout ratio has hovered near or above 100% of earnings for many years, signalling that the parent sees Uganda as a cash extraction point rather than a growth platform.

From 2020 (19,960) to 2025 (7,757), net profit is down about 61% in total. That is a compound decline rate of roughly 16–17% per year over 5 years. Even if you measure from 2019 (15,682) to 2025 (7,757), profit is down ~51% total, or about 11–12% per year compounded.

In 2025 alone, Gross revenue fell 18%: 82.1b → 67.0b. Excise duty and VAT declined only 7% (89.6b → 83.6b), so taxes absorbed more of the price/volume mix, pushing the tax‑to‑gross ratio higher. Net revenue dropped 20%: 45.2b → 36.3b. Profit before tax fell 18%: 15.1b → 12.4b. Profit after tax collapsed 25%: 10.3b → 7.8b.

Research on Uganda’s policy process shows substantial industry lobbying and a tendency to differentiate rates for local vs imported products, but also documents political pressure to close the gap with WHO’s 70% tax‑share target; Uganda’s current total tax‑to‑price share is still materially below that benchmark.

BATU’s 2024–2025 commentary elevates illicit trade to a core risk, noting the illicit incidence jump from 34% (2023) to 40.8% (2025) and warning that further steep tax hikes without enforcement will push more consumption out of the legal channel.

Given 2025 data, they mostly passed it on but still suffered both lower volumes and lower profits, implying a nasty tax–elasticity point has been hit.

The burden of proof is now on management to show they can prevent the 2020–2025 decline vector from extending; absent clear policy improvement and illicit control, the default expectation should be further real‑term shrinkage rather than sustainable growth.

It dominates as Kenya’s core network essential, serves as a quickly advancing but forex-constrained challenger in Ethiopia, and functions as a highly cash-generative operation still exceeding its cost of capital, effectively purchasing a distant-horizon upside option on one of the continent’s last significantly under-served telecom frontiers.

That combination of mature Kenyan cash flows plus a derisking Ethiopian ramp, is exactly the kind of asymmetry that justifies owning the company shares.

The price to pay, though, is a debate of another day.

My favorite method of pricing is looking at past historical lows, and highs, financials, during that period, mapping it out with current prices, and current financial standing of the company.

I analyze the past earnings growth rates of the company, and consider the tail winds that may accelerate future growth. For example, I may try to think about how many years it may take for the company to double its earnings, and then work backwards towards a price I’m willing to pay.

The Kenyan engine: a dominant utility still compounding

Start in Kenya, because that is still where the equity story is funded. Safaricom controls roughly two‑thirds of Kenya’s mobile subscriptions, around 63–66% versus Airtel at about 29–32%, a level of dominance that has proven surprisingly durable even as pricing pressure and regulatory scrutiny have intensified. In mobile money, the position is even more entrenched. The Communications Authority estimates Safaricom at over 90% share of mobile‑money subscriptions and transaction value, with Airtel Money barely into double digits.

That dominance shows up in the income statement. In FY 2024 Safaricom’s service revenue grew in the low‑teens, to the mid‑KES 300 billions, with M‑PESA revenue up nearly 20% to about KES 140 billion and data revenue also expanding double‑digit. Kenya on a stand‑alone basis generates net income north of KES 80 billion, even as group‑reported profit is dragged down by Ethiopia. Over the last decade, earnings per share have risen from under KES 1.00 to around the KES 1.5–1.7 band, while dividend per share has climbed into the KES 1.20‑plus zone. dividend cover sits roughly 1.3–1.4x, and free cash flow comfortably funds both payouts and capex.

Crucially, this is not a melting‑ice‑cube utility. The 2024 report highlights service‑revenue growth of about 13% and an M‑PESA base of over 32 million active customers. data usage per user continues to rise, and 4G/5G coverage now spans most counties with hundreds of active 5G sites and tens of thousands of kilometres of fibre. Safaricom is still earning high returns on invested capital in Kenya, a dense network, enormous scale, and network effects in payments keep ROIC above the cost of capital even as headline growth slows.

From an equity‑holder’s perspective, that Kenyan core does three things. it throws off cash, it justifies a solid baseline dividend yield, and it provides internal funding for Ethiopia. If Kenya were all you were buying, you would already have a reasonably attractive defensive compounder.

what does Ethiopia do to that picture?

Ethiopia: painful FX today, embedded value tomorrow

The Ethiopia story has two layers. the operating business and the currency. Operating performance is actually moving in the right direction. Safaricom Ethiopia passed 12.2 million 90‑day active customers by early 2026, up over 70% year‑on‑year, and has been growing service revenue strongly off a low base, driven by mobile data. Losses at the subsidiary level are narrowing fast. by late 2025, Ethiopia’s losses had fallen by more than 50% versus the prior year in some reporting periods, as scale effects began to kick in.

Then there is the birr. In 2024 Ethiopia shifted from a tightly managed FX regime to a much more market‑based system, which effectively doubled the official birr rate versus the dollar, moving from roughly 58 to about 119 ETB per USD, bringing the formal market closer to the long‑standing black‑market reality. For Safaricom, that FX step was brutal. the birr’s 106% depreciation and the associated hyperinflationary accounting knocked about KES 33.8 billion off earnings in one period, even though underlying operations grew strongly. The group is required to consolidate 100% of Safaricom Ethiopia’s results and then translate them into KES, so the currency hit looked worse than the economics felt on the ground.

But notice that Safaricom has already begun localising debt and adjusting its capital structure in Ethiopia to reduce future translation risk and analysts flag that much of the USD‑denominated debt has been re‑anchored within the subsidiary.

Second, the FX shock is, by definition, non‑recurring at that magnitude. the birr can remain weak or drift further, but it cannot keep halving against the dollar every year without triggering systemic crisis, and the IMF‑supported programme explicitly aims for a more stable, market‑clearing regime over time.

So Ethiopia’s birr is a real but front‑loaded risk in that it has delayed the optics of break‑even and compressed group earnings in the short term, but as losses shrink and debt is localised, the incremental FX drag on earnings diminishes while the embedded value of a scaled Ethiopian operator remains. At a good enough entry share price, you are effectively being paid to hold the company and bet on Ethiopia’s eventual normalisation.

M‑PESA: the rail that turns a telco into an economic platform

M‑PESA is the engine that makes Safaricom’s economics better than a typical emerging‑market telco. In Kenya, M‑PESA revenue grew nearly 20% year‑on‑year in FY 2024 to almost KES 140 billion, and Safaricom’s mobile‑money market share still sits above 90% despite Airtel’s recent gains. It is not just P2P transfers any more. large‑ticket merchant payments, salaries, government disbursements, savings products and micro‑credit all run over the same rails. That stack gives Safaricom three structural advantages:

1. Pricing power without overt tariff hikes. It can add new services and bundles instead of simply raising headline prices in a politically sensitive market.

2. Economies of scope. Each new product increases the value of the platform to existing users and merchants, raising switching costs.

3. Defensive moat versus banks and fintechs. Banks in Kenya ended up partnering with M‑PESA. Other competitors exist, but the core payments flow still defaults to Safaricom’s ecosystem.

In Ethiopia, M‑PESA launched in August 2023 and is already echoing the early Kenyan trajectory. By the end of 2025 it had reached about 5 million 90‑day active customers, over 50,000 merchants, integration with 18 banks and more than 900 apps built on its open APIs. micro‑loan products such as “Errif Be M‑PESA” already counted more than 1.6 million users. Regulatory strategy documents like Digital Ethiopia 2030 and the National Digital Payments Strategy explicitly position mobile money, including M‑PESA, as a central pillar of inclusion and formalisation.

Telebirr, run by Ethio Telecom, has a head start and huge user numbers, but M‑PESA’s telco‑agnostic, bank‑integrated, API‑rich design positions it as the more flexible, business‑friendly rail. If Ethiopia’s policy environment stays broadly on the current course, there is room for a duopoly in which Telebirr is the default state wallet and M‑PESA becomes the preferred rail for merchants, banks, cross‑border flows and more complex financial services. For Safaricom shareholders, that is the scenario that turns Ethiopia from a capex sink into a compounding engine over the next decade.

Industry structure: a tough game, but one Safaricom is built for

Telecom and mobile money are not gentle industries. Suppliers such as network vendors, tower companies, spectrum regulators, have real leverage, and buyers have alternatives in the form of rival networks, Wi‑Fi, cash and banks. Pricing is under constant pressure from regulators and competitors, and fixed costs are high.

The question is not whether the “five forces” are strong, but whether the specific firm has built enough differentiation and scale to bear them.

In Kenya, the answer is yes. Safaricom’s network quality, breadth of distribution, and depth of the M‑PESA ecosystem mean it can absorb price competition from Airtel and occasional regulatory interventions while still generating high Returns On Invested Capital and Free Cash Flow. Market share has slipped a few points at the margin as Airtel has pushed aggressively, but the structure remains that of a stable oligopoly in a still‑growing data and digital‑services market.

In Ethiopia, the structure is actually more favourable than many fear as there are only two serious operators, population density in key corridors is high, and mobile‑money adoption is being actively encouraged by policymakers as a substitute for cash.

The real external risk is macro and regulatory, in that, whether a future government backtracks on FX liberalisation and telecom opening, and whether Telebirr, of Ethio Telecom, is given overt policy advantages that tilt the field. But those risks are precisely why the market is currently underpricing Ethiopia’s option value in Safaricom’s stock.

Valuation, time horizon and the investment case

On trailing numbers, Safaricom trades at 15.2x P/E, depending on how you normalise Ethiopia’s FX distortions, with a dividend yield that has become meaningfully more attractive after the price correction of the last few years. Given that EPS has been held back by one‑off birr shocks and front‑loaded capex, while underlying EBIT is now guided to surge as Ethiopian losses narrow, you are not paying a heroic multiple for what is still one of Africa’s best recurring‑revenue franchises.

The simple way I frame it is this:

1. Base case (Kenya only). You own a dominant Kenyan connectivity and payments utility with high returns, structural growth in data and digital finance, and a consistent dividend, at a reasonable multiple.

2. Upside case (Ethiopia normalises). Within 4 years, Safaricom Ethiopia reaches break‑even, M‑PESA and data penetrate deeply, and the subsidiary becomes a second growth engine adding double‑digit percentage points to group earnings.

3. Risk case (policy reverses, birr remains unstable). Ethiopia never earns a normal return in KES terms, but Kenya continues to throw off cash, the group localises more risk on‑balance‑sheet in Ethiopia, and Safaricom behaves more like a high‑quality Kenyan defensive with a misfired foreign adventure.

At current prices, the market is treating Ethiopia somewhere between the risk case and the base case, pricing in the pain of FX and start‑up losses but not assigning much probability to the upside scenario where M‑PESA in Ethiopia becomes as central to everyday life as it is in Kenya. If you have a five‑to‑ten‑year horizon, a tolerance for near‑term EPS noise from FX, and a preference for businesses that sit on top of real‑economy transaction flows rather than pure narratives, Safaricom’s shares are, in my view, worth accumulating.

You are effectively buying Kenya’s dominant digital rail at a sensible price and getting a long‑dated call option on Ethiopia’s economic and regulatory maturation thrown in. That is the sort of skew I am content to live with, provided I remember that it is a thesis to be measured in years, not quarters.

What matters most for your own position sizing is how many years of birr volatility and Ethiopian ramp‑up you are prepared to sit through before judging whether the option has paid off.

How Do You Grow While Paying Out Almost Everything?

If a company pays out 95–100% of its earnings, shouldn’t growth stall? This is a dilemma that one of my friends inquired about on the day the full-year financials were released. Airtel Uganda appeared to defy that intuition.

Between 2022 and 2025, the business has still grown Profits After Tax from roughly UGX 326Bn in 2022 to UGX 446.9Bn in 2025, a jump of about 37% over three years.​

The four‑year dividend payout picture

On a simple average, the dividend payout ratio is about 88% profits after tax.

Are These Dividends Actually Funded by Cash?

High payout ratios on paper are one thing, but funding them from genuine free cash flow is another.

The last two years of cash flow say that Airtel’s dividend policy is a “cash machine”:

1. 2024 operating cash flow of UGX 879.9Bn and capital expenditures of UGX 229.2Bn with dividends of UGX 301Bn.​​

2. 2025 operating cash flow of UGX 1,013.4Bn, and capital expenditures of UGX 238Bn with dividends UGX 404Bn.​

After Capital expenditures, Airtel still generated hundreds of billions in free cash flow each year, more than enough to cover dividends and repay some borrowings and leases. Bank debt actually ticked down slightly in 2024–25, even as dividends stayed aggressive.​

So the first surprise is that Airtel’s 95–100% payout is not being plugged by a rising interest bill, but, for now, backed by strong operating cash.

Is ROIC (Return on Invested Capital) Really 70%…Or Is Leverage Doing the Heavy Lifting?

Airtel’s return on invested capital (ROIC) looks extraordinary. Using the 2025 summary financials:

1. Operating profit (EBIT): UGX 849.2Bn.​​

2. Effective tax rate approximately 30%, giving NOPAT about UGX 593Bn.​​

3. Invested capital (equity + bank debt − cash) is approximately UGX 803Bn, leading to approximately 74% ROIC.​​

Research shows that lease liabilities are enormous. At the end of 2025, Airtel carried over UGX 1.5Tn of lease liabilities versus only UGX 185.4Bn of equity and UGX 645Bn of bank debt.​​

If you treat those tower and spectrum leases as part of operating capital, invested capital jumps to roughly 2.32Tn, and ROIC falls to about 26%.

So, then, is Airtel a 70% ROIC juggernaut, or a 25–30%‑ROIC business levered on long‑dated leases and modest equity?

On a lease‑adjusted basis, it is the latter, and that’s still very good, but it changes how you think about risk and sustainability.

Many tower and network leases have inflation or FX‑linked escalators, but Airtel Uganda is currently compounding earnings far above Uganda’s inflation rate and estimated lease cost, which makes the model look excellent as long as that spread lasts

Airtel Africa’s tower agreements with American Tower Corporation (ATC) were renewed for about 7,100 sites across Nigeria, Uganda, Kenya, and Niger. The group highlights that ‘a proportion is linked to foreign currency,’ most likely, USD, which typically implies escalators tied to FX and sometimes local inflation.​

Airtel Uganda’s Full Year 2025 commentary notes that finance costs rose 18%, driven “primarily” by interest on lease liabilities after adding 258 sites and extending the ATC tower lease agreement.

Lease liabilities on Airtel Uganda’s balance sheet increased in 2025, and leverage metrics are reported on a ‘lease‑adjusted’ basis, which is standard when leases carry predictable, contractually escalating payments

The exact Uganda‑specific inflation index used in tower contracts is not disclosed, although the structure (long‑term tower leases renewed for 12 years, some FX‑linked, with rising lease interest) strongly suggests that lease payments rise over time with inflation and/or FX, rather than staying flat in nominal terms.

Uganda’s economy is in a low‑single‑digit inflation period, while tower leases likely escalate at rates that, in practice, will be somewhere in the mid‑single‑digit range once you factor in FX and contractual increments, even if we can’t see the exact clause.

by a very wide margin in recent years, Airtel Uganda is compounding earnings faster than lease and inflation pressure

Profit After Tax grew from UGX 316.7 Bn in 2024 to UGX 446.9 Bn in 2025 (+41%) on revenue growth of 13.3%, while Interest on lease liabilities increased enough to push finance costs up 18%, but profit still expanded strongly.

On a lease‑adjusted invested‑capital base of roughly UGX 2.32Tn in 2025, Airtel’s Net Operating Profit After Tax of about UGX 593Bn implies an economic Return On Invested Capital of approximately 25–26%, compared with 3–4% inflation and mid‑single‑digit implied lease escalation.​

That spread, ROIC in the mid‑20s vs lease/inflation costs in the low‑to‑mid single digits, is impressvely large. If maintained, every shilling reinvested after paying leases would still earn a real return far above the erosion from inflation.

What does this mean over the lifetime of the leases?

The tower leases renewed by Airtel Africa add roughly 12 years to existing agreements, pushing them well into the mid‑2030s. Over that time Lease payments will steadily increase with FX/inflation clauses, raising the real cost of occupancy.

Yet if Airtel Uganda can sustain even a reduced NOPAT growth rate of, say, about 8–10% in real terms (well below the 35–40% seen in 2025), it would still compound earnings more than twice as fast as local inflation.​

As long as ROIC on new sites and spectrum stays in the 20%+ range and data usage keeps scaling, the present value of earnings growth dwarfs the incremental cost of leases

In that scenario, long‑dated, partially inflation‑indexed leases are not a burden but a leveraged bet on real growth. Airtel locks in access to tower infrastructure today, pays a slowly escalating nominal rent, and uses that infrastructure to generate earnings that grow much faster than both the rent and inflation.

How Much Growth Comes from Data, Not Just Accounting?

What exactly powered the “astronomical” step‑up in 2025?

From 2024 to 2025:

1. Profits After Tax rose from UGX 316.7Bn to UGX 446.9Bn (+41%).​​

2. Operating profit jumped from UGX 629.1Bn to UGX 849.2Bn (+35%).​​

3. Revenue increased from about UGX 1.99Tn to UGX 2.23Tn (+13.3%).

This is an operating‑leverage picture. Underneath, two things changed.

Data revenue overtook voice, with data surging to roughly UGX 1.30Tn while voice was around 700Bn by 2025.

The network was largely built. Adding incremental data traffic and subscribers required far less capital expenditures than the earlier roll‑out phase, so a larger share of each revenue shilling dropped into profit.

2025’s “astronomical” improvement is fundamentally a data monetisation story, where there are more bytes on already‑installed infrastructure, rather than a pure accounting trick.

Are Retained Earnings Real Cash, or Cement in the Ground?

Another subtle question is about retained earnings quality. From 2023 to 2025,

Retained earnings rose from about UGX 86.7Bn (2023) to UGX 145.3Bn (2025), a cumulative increase of nearly UGX 59Bn.​​

Over the same period, Airtel spent roughly UGX 467Bn in cash capital expenditures and added substantial lease‑capitalised assets.​

Most of what shows up as retained earnings has been sunk into fixed and right‑of‑use assets, such as spectrum, towers, and network gear, and not stored as financial liquidity. This is fine while the network earns high returns, but it means there is little firepower on the balance sheet, and future dividends will live or die by future cash flows, not by past accumulation.​

Airtel Uganda has always been an unusual beast. a high‑ROIC, high‑payout, lease‑leveraged data‑telco that appears to fund its rich dividends from strong cash flow while still growing earnings.​

For a fundamental investor, the core question becomes

Answering that, year after year as new numbers come out, is where the real edge in Airtel Uganda will lie.

The big debate, though, that I always have with peers, is the sustainability of this moat and If new service providers such as Lycamobile, Rocket Internet, etc, who are constantly pricing their internet bundles at lower prices, which consequently forces Airtel and MTNU to revise their pricing, in order not to lose customers who might migrate to the competition, are not threat to this moat.

Declared net profit for FY 2024/25 is KES 7.49B, and dividends are KES 5.90B, on 18.17B shares (post‑split EPS 0.4122, DPS 0.3247). This implies a payout ratio of 78.8%, a bit below 80%, and a dividend yield of 3.85% at the IPO price of KES 9, which is generous but not compelling if you want both income and high reinvestment returns

Kenya Pipeline Corporation management has guided to a 50% payout ratio going forward, not the 80%+ implied by FY 2025 Dividends Per Share.

With Earnings Per Share being approximately KES 0.41, a 50% payout means a normalized Dividend Per Share of approximately 0.22, not 0.347, which means that the dividend yield lowers to approximately 2.4%, which is less than the 3.9% that appears advertised in the IPO prospectus.

At KES 9.00 IPO price:

1. Earnings Per Share is 0.4122 → trailing Price / Earnings ratio ≈ 21.8x.​ which is really expensive

2. Dividend Per Share is 0.347 → trailing yield ≈ 3.9%. which is extremely low. Nearly as disappointing as the dividend from Centum Investments, a REIT

Historical payout ratios (5 years)

The coverage ratios from the table imply that in several years, dividends exceeded that year’s earnings, supported by prior retained earnings and state pressure for cash.

This is very different from a disciplined 50% policy, unless the policy is to be implemented starting this year of the year IPO and the following years.

Management now “commits to distributing fifty per cent (50%) of its net earnings as dividends” going forward, which is, notably, a lower payout than in recent good years and more internal retention. The new IPO‑era pledge to hold payout at 50% means:

1. Lower cash out to shareholders vs 2022–25 average.

2. More retained earnings reinvested into large capex (Line 5 done, now Eldoret–Malaba–Kampala, LPG, new Mombasa–Nairobi line, etc.).

KPC looks like a utility / REIT‑like compounder with modest reinvestment returns, not a compounding machine.

A regulated Kenyan pipeline with 8–10% ROE and tariff‑capped growth struggles to pass Buffett’s 1 dollar test, unless the market is currently underpricing its cash flows, which is not true, and re‑rates sharply, which is unlikely to happen.

Buffett’s “dollar test” asks whether each dollar retained produces at least one dollar of additional market value over time.

What’s the Deal with Uganda?

1. Why buy a large stake in KPC, yet they are building their own refinery?

2. Given that Uganda accounts for more than 50% of revenue from the Kenya pipeline company, what will happen in 2030, when Uganda refines its own fuel in Hoima?

KPC is a regional midstream operator with 1,342 km of pipelines and >1.1M m³ of storage, handling domestic and transit volumes. Growth strategies explicitly include the Eldoret–Malaba–Kampala pipeline, LPG expansion, and regional lines, with KPRL as a storage hub.

Uganda’s crude exports are planned via EACOP (Hoima–Tanga) to Tanzania. this is crude, export‑oriented, not back‑to‑Mombasa via KPC, which means that Uganda won’t import its refined oil back through KPC again; therefore, no extra income through the KPC line. EACOP is a one‑way crude export pipe to the coast, with no plan of transporting the oil to Mombasa and back inland to Uganda.

What happens when Uganda’s refinery comes onstream?

Uganda’s planned refinery in Hoima has repeatedly slipped. Once fully financed and in execution, typical construction and commissioning is 4–6 years, although Uganda’s projects can take way longer than that

Uganda’s domestic demand for petrol/diesel/Jet A‑1 would be partly or largely supplied from Hoima, so product imports via Mombasa/KPC for Uganda’s own consumption should decline. This means less revenue for KPC, and thus less profit for KPC shareholders.

It is to note, however, that Uganda may still import or export specific products depending on demand, and that the country serves eastern DRC and South Sudan, where KPC’s corridor from Mombasa through western Kenya may remain competitive for some flows.

So KPC’s Uganda‑linked volumes will evolve from “Uganda pure imports” towards:

1. Residual imports

2. Transit and regional re‑exports

3. Potential product trade flows between Hoima, Mombasa, and neighbouring markets.

Why would Uganda still want a big stake in KPC?

Even with a refinery and EACOP, Uganda wants a second corridor for fuel imports, especially if the refinery isn’t yet at full, reliable output or needs balancing products. Equity in KPC secures that, as they have a say in the matter.

Uganda also wants to be a refined‑product hub in eastern DRC and South Sudan. KPC’s steel to Eldoret/Kisumu is effectively part of that supply chain.

By owning a slice of KPC, Uganda participates in a stable, EPRA‑regulated return on regional infrastructure, regardless of whether volumes are slightly higher or lower than today.

If one is looking forward to buying shares in this monopoly, they just have to wait until the market adjusts the prices