Finances: In IPO’s, a firm’s fundamentals are what matters

Today, every Rwandan investor who would have watched in envy at the variety of investment options available in stock exchanges in neighbouring countries now watches with glee as yet another Rwandan company lists on the now fully fledged Rwanda Stock Exchange.

Today, every Rwandan investor who would have watched in envy at the variety of investment options available in stock exchanges in neighbouring countries now watches with glee as yet another Rwandan company lists on the now fully fledged Rwanda Stock Exchange.

Even better, the Bank of Kigali’s Initial Public Offer (IPO) is just one of expected many coming up this year and later as the Rwanda government seeks to privatize state firms which it has successfully nurtured into successful businesses which now need to expand naturally hence the need for funds.

Such companies will include the likes of mobile phone giant MTN and insurance leader SONARWA.

The excitement to invest in shares is understandably palpable because those Rwandans who invested in the country’s first IPO in BLALIRWA have not regretted as they have seen the value of their shares rise by price and have even already received dividends i.e. their share of profits for the period in which they have been part owners in their business.

However, investors should always remember the investment in shares famous disclaimer – share prices can rise or fall. Why then does everybody convince us to buy shares if they do not know if shares will rise or fall?

The answer is in the strengths and weaknesses of the business. Normally, the financial history of a business is the safest way to tell how the business will behave in the future.

That is the reason why the IPO promoters direct all interested investors to read the company’s prospectus which is widely available for free. In the prospectus is the ‘audited’ state of health of the company – meaning the financial stage of the company which has been checked by independent bodies and found to be true.

Every young investor may not know or understand how to read a prospectus, but this is the time to learn and get ahead of the completion.

Ideally, what really matters in an IPO are a company’s fundamentals. If a company has strong fundamentals then it has good long term prospects while a company with weak fundamentals may have good short term prospects but poor long term expectations.

The logic in investing in shares is to hold shares long enough beyond the habitual lows and highs and harvest from the natural growth in value of shares in a healthy growing company.

This whole IPO period is a time to ask as many questions as one can. Investment advisors will be willing to answer you to questions whether or not you have the money to buy shares because they have no way of knowing.

And so are the multitudes of IPO ‘instructors’ and customer care advisors who are located in Bank of Kigali branches. It is the time for them to help you understand what fundamentals you should be looking for in a company that you wish to invest in.

In most parts of the world, and indeed in other east African countries, it is those individuals who took to understanding how the stock exchange works while everybody was still pessimistic about it, that really became the first silent stock exchange millionaires.

So if you are really interested in playing the stock exchange this is a wonderful opportunity to seek information or to sacrifice Rwf 12,500 to break into the Rwanda stock exchange even if not for the value of the money and just to help you understand the dynamic and trends of stock exchange investing.

Ends