Is investing in MTN’s IPO a good buy? 

Last weekm MTN International (Mauritius) Limited floated an Offer for sale of 4.5 billion ordinary shares with a par value of Shs1 each in the share capital of MTN to the general public. The IPO period will close on Monday November 22 2021. 

The offer is expected to facilitate the broadest possible shareholder base in Uganda, with Ugandan Retail Investors making Applications for Offer shares of an aggregate minimum value of Shs5 million to be allocated the full number of Offer Shares.
The MTN Uganda listing is part of its compliance of the licensing regime where operators are required to go public with at least 20 per cent of their shares. 

Applications from Ugandan Retail and Professional Investors shall be given priority, in the event of oversubscription.
The IPO is in line with the National Broadband policy and national telecom operator licence issued by the Uganda Communications Commission (UCC), to broaden Ugandan shareholding in MTN and provide an opportunity to Ugandan investors, to own a stake in the company and participate in its future growth. 

Good investment
The head Department of Finance Faculty of Commerce Makerere University Business School, Dr Rachel Mindra Katorooga told Prosper Magazine in a telephone interview on October 16 that investing in MTN shares is a worthwhile opportunity for both the short and long-term investors in Uganda because MTN is one of the leading telecommunication companies in Uganda with track record of good performance. 

“This is a good investment opportunity for both the old and young people, students and those in the higher institution of learning because it is a well-established telecommunication company. It offers good investment returns on equity,” she said.

Dr Mindra said the 260-page MTN prospectus shows that it has been consistently paying dividends to the shareholders in the past years, which is good for stock market investors in Uganda.     
“The earlier one starts investing in MTN for the long term, the better for you (him/her) because you get to start growing up with the company as you earn from it in terms of dividends or selling your shares,” she said.  

Dr Mindra further stated that MTN has been performing well in Uganda since its entry into Uganda’s telecommunication industry by introducing various telecommunication products as well mobile money services. This will contribute to good investment opportunities for the long term. 
Making money
But some Ugandans and other investors are wondering how and when they will make the money. 

Mr Stephen Kaboyo, the managing director Alpha Capital, explains that there are two ways of making money at the Uganda Securities Exchange. One can wait for the share price to rise beyond the Shs200 or wait for dividends.
“You can buy and wait for the investment to appreciate. After listing, the supply and demand dynamics will come into play which will influence the prices. Price appreciation means capital gain,” Kaboyo explains. 

Secondly, you can make money through dividends where a company makes profits and shares them with shareholders. 
“Through dividend announcement which is based on the company’s revenue. At the end of every year, the company will announce its financials and declare dividends. As a minority Ugandan shareholder, you’re entitled to a dividend which you can cash out or reinvest with the view of growing your portfolio,” Kaboyo says.

Mr Charles Mbire, MTN’s board chairperson, says the listing will have broader local ownership consistent with its philosophy of local stakeholder participation, enabling Ugandans to own part of and share in the success of the company. 
“Investors will benefit from dividends (when declared by the company) and a capital gain per share depending on the performance of the company over time and its trading activity,” he says in the MTN prospectus. 

Adding: “The capital markets will be strengthened with the USE benefitting from an increased market capitalisation and share liquidity, giving the Ugandan investors the opportunity to transact in the shares of the company and realise the value of their investment.”

MTN’s core business involves providing telecommunications services covering network services, digital and financial technology services, interconnect and roaming, sale of mobile devices and MTN Mobile Money (conducted through the Mobile Money Company).

Retail and institutional investors
In the stock market, there are two main types of investors; individual or retail investors are investing their own personal wealth and will tend to trade in relatively small amounts. 

Nevertheless, they can have an impact on the market. Where there are small stocks with limited liquidity, they may be instrumental in moving the price since they frequently sell their shares unlike the institutional investors who go in for long term.
Unlike retail investors, institutional buyers including local and foreign insurance companies, pension funds, and investment firms have longer holding periods that allow them to ride out bear markets and earn dividends over the years.

Similarly, institutional investors are financial institutions that accept funds from third parties for investment in their own name but on such parties’ behalf. They include pension funds, mutual funds and insurance companies.
Globally, institutional investors, those financial institutions accepting funds from other parties for investment by the institution in its own name but on their clients/beneficiaries behalf, such as pension funds, mutual funds and insurance, are now significant players in the global economy.

Institutional investors 
The role and influence of institutional investors has grown over time. 
The responsibility of institutional investors stems, in large part, from their stewardship of assets that belong to others. But behind all institutional investors and their portfolio managers are thousands or millions of workers, savers, policy holders, retirees, and other individual investors, who rely on those they entrust with their monies to provide for a safe and secure retirement, to help them save for a home or college education among others.

In the stock market world over, dividends are an important consideration when investing in the share market as they provide a reliable source of return. The payment of a dividend is much more dependable than an increase in capital growth in a given year. 
In accordance with the USE listing rules, dividends are approved shall be paid within 21 days of the books closure date. 

Dividends paid are subject to withholding tax, which is borne by the shareholder. Dividend payments to resident shareholders will attract withholding tax of 10 per cent of the gross amount, while dividend payments to non-resident shareholders will ordinarily attract withholding tax of 15 per cent of the gross amount. 

For non- resident shareholders, double taxation relief may apply where Uganda has double taxation arrangements with the country of residence of a particular non- resident shareholder, in which case the withholding tax rate would be 10 per cent. 

Institutional Stock Brokers Institutional Stocker Brokers have large institutions and companies as their clients and trade in securities on behalf of them. 
 Any investor must be aware of market risk. Here, shares can go up or down. Therefore,  do not put your eggs in one basket; diversification is key.

Dividend pay-out
Approved by the Board on November 2 2020, MTN’s current dividend policy provides that in the medium-term, it will target a dividend pay-out ratio of at least 60 per cent of annual profits after tax.

The dividend pay-out ratio in any given year will be subject to Board discretion considering the company’s cash projections, business outlook, investment plans, capital markets conditions, solvency and liquidity, tax regulations and debt covenants. 
The Board may also vary the dividend pay-out ratio in a year if the accumulated reserves can accommodate an extra payment above the set ratio subject to cash availability and compliance with debt covenants.

This implies that in some years, the board can decide on a specific amount of dividend that can paid out to the shareholders for a particular year.  
MTN has for the period ended September 30, 2021 paid two interim dividends totaling Shs230 billion.

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