Ice cold local market still unperturbed by election hangover
Business
Latest market observation depicts lukewarm local bourse with less action amid hangover from the seemingly unpredictable and uncertain polls. A general notion is that foreign investors are not yet ready or treading carefully not to pop out money and pour it into the local market yet.
The local market has been dogged by illiquidity and this year of elections has been referred by market specialist as “worse than other years,” prompting belief that the issue of former President breaking ranks with his successor before joining opposition could spell the highest political uncertainty for this country, a huge scare for foreign investors.
The market has been shaking at a small movement days before the general elections, just as it has since the beginning of 2019. Stockbroker Motswedi Securities recently said, when opening the week (this after coming from the polls) the market wasted no time getting into the groove of things. The stockbroker further said as volumes traded amounted to 12.6 million shares with a market value of P16.1 million – of which traded across 10 stocks on the domestic main board.
“Leading the trades was Letshego, claiming the bulk of session's liquidity with 10.25 million shares in the name changing ownership, with a worth P8.2 million. The stock's demand has been increasing exponentially, since the price stepped down to where it is now, i.e. its lowest valuation in its history of being listed on the exchange,” said Motswedi.
On Monday only a slight price movement was registered by Barclays bank whose stock climbed 4 thebe in the session to P5.45/share as 71,728 shares moved across the board as investors booked profits. However, the Barclays price rise has no links to the elections aftermath, the slight share price upswing was merely the investors’ reaction to the company’s rise in profits for its current financial year and payment of a net dividend of approximately 12.94 thebe per share.
According to market statistics, just a week coming from elections and last week’s public holidays, 12,591,498 traded on Monday while a turnover was P16 090 407. Just a day before the elections, Motswedi Securities said the market was thrumming with activity jumping from trading 2 121 448 shares on the second week of October to 4 140 699 shares.
A day before the national polls (22 October 2019), a general observation by Motswedi Securities was that, “investors were trying to make up for the lost next couple of days as the national elections commence. The local equity market traded volumes just above 4.14mn, to get to a turnover of just under P13.83, moving across 14 stocks.”
After the polls, this week, shares in the Botswana Stock Exchange increased its trading by three times, hopping from 4 140 699 to 12,591,498. This could mean investor confidence is slowly being recovered by the local bourse. But market experts remain skeptical of the local market saying it continues to be “slow and inefficient” and illiquid. A lot of experts did not expect the local market to shake much after the elections because it has always been synonymous with illiquidity and it is a very small market.
When making an analysis on African capital markets titled ‘Driving liquidity in African capital markets’, the Botswana Stock Exchange (BSE) Chief Executive Officer Thapelo Tsheole, highlighted limited foreign investor participation as one of the factors contributing to the continent’s susceptibility to illiquidity.
Stockbrokers Botswana recent market commentary, which was done out of the research carried out a day before the elections is that; the Domestic Company Index was flat at 7526.85 points, a similar for the Foreign Company Index which was also flat closing at 1564.54 points. In the elections week, Stockbrokers Botswana said the short trading week saw turnover coming in at P20 845 806 as 6 262 147 shares traded. In that week, the largest contributors to turnover were FNBB (39 percent), Sechaba (25 percent) and Barclays (11 percent).
A previous week before the elections Stockbrokers Botswana said, the Domestic Company Index ticked up by 0.16 percent to close the week at 7472.45. The Foreign Company Index has remained flat for weeks as it closed at 1564.54 points. BTCL was the biggest gainer this week, up 4 thebe to close at 105 thebe. Total turnover for the week amounted to P14 961 093 as 1 846 272 securities exchanged hands. For the ET, NewGold held the lion’s share of turnover with 82 percent. BTCL’s share was 4 percent while Letshego’s was 3 percent.
How the markets fared in a quarter (Q3) towards elections
According to Stockbrokers Botswana’s latest released research on market performance during a quarter before election, Quarter 3(Q3) the Domestic Company Index depreciated albeit at a slower rate, losing 2.12 percent compared to a contraction of 3.34 percent in Q2. ‘’The Domestic Company Index reached a 12-month low of 7397.77 points in August, however, it recovered over September to close Q3 at 7460.95 points,” said Stockbrokers Botswana Q3 research.
According to the stockbroker, the downward movement of the domestic index can mainly be attributed to Letshego which lost 59 thebe (41 percent) during the quarter. Stanchart was the second biggest loser after it lost 13 thebe (12 percent). “Conversely, majority of counters on the Domestic Company Index recorded prices which either increases or no changes at all. Only 7 counters experienced downward price movements during the quarter. The biggest gainer was Letlole which climbed up 16 percent.’’
Also in the third quarter, BTCL joined the top performers for the first time since 2017, appreciating 13 percent to close the quarter at 101 thebe. In the ETF board NewPlat (+10.9 percent) and NewGold (+10.2 percent) made the top 5 gainers list once again, as seen in Q1 and Q2. Cresta gained 9.1% to reach 132 thebe, which is its highest price since 2011.
According to Stockbrokers Botswana, Total turnover amounted to P458.2 million (Q2 2019: BWP582.2 million) off of an exchange of 130.9 million securities (Q2 2019: 101.5 million securities). The lion’s share of these figures was held by Far Property Company (FPC), following a related party transaction which accounted for 50 percent of total turnover and 70 percent of total volume, said Stockbrokers Botswana. Just like what observers have been saying about this elections year, StockBorkers Botswana said low trading can only suggest that the market remained starved of liquidity in the third quarter, the period of the polls.
In Q3, Stockbrokers said, the market capitalization declined 6 percent to BWP38.5 billion (Q2 2019: BWP40.8 billion). This was weighed down by losses in Letshego and Stanchart, as well as the Wilderness delisting which occurred in the beginning of July. Stockbrokers Botswana said, weighted P/E Ratio was marginally lower at 11.2x (Q2 2019: 11.3x) while dividend yield was 5.5 percent from 5.3 percent in the last quarter.
Moody’s vindicated or is still early?
While other think tanks predicted BDP to win with a slight margins and elections to be chaotic, the US Moody’s before the polls said Botswana will not head to any political instability. Moodys said it expects limited election-related policy uncertainty in Botswana, Namibia, Senegal and Ghana, “given their track records of political stability.”
While there was no uproar after the election results were released, most in the opposition front are skeptic of how elections were run. Some allege the elections were flawed and unfair, accusing the elections body to have fraudulently swayed election win to the ruling BDP. A court application against the results is said to be looming, raising much political uncertainty hence further investor fright which has been worse since the beginning of this year. This might dent Moody’s trust on Botswana which calls this country politically stable, this is if things go out of control.
BDP won this year’s elections by 51 percent and this contradicts Africa’s leading bank by assets Standard Bank’s prediction which said while BDP will win, it will be without an outright majority. The bank said an ongoing feud between the current President and his predecessor has wrought political unrest in the country. However the bank was still hopeful of Botswana even before this month’s polls saying: “We view the current political turmoil as temporary; we expect no significant deviation from the current economic policy, even if the BDP lost the election.”
Most surveys and researches predicted that the 2014 elections in which BDP’s 46 percent vote will shrink even further. BDP got a popular vote of 53.3 percent in 2009. According to Afrobarometer survey conducted in July/August 2019, BDP would enjoy a 2-to-1 lead over the opposition UDC 44 percent to 22 percent. Many have been caught by surprise with this year’s elections because many predicted lower than 46 percent lead by BDP, given the damage caused by its former leader Ian Khama. Some even predicted a “hung parliament.” That is why the election results remain debatable and doubtful to some while few accepted results.
Business
ICT sector contributed P1.6 billion in Q4 2022
The latest figures by the government owned statistics entity, Statistics Botswana show that the Information and Communications Technology (ICT) sector in this country registered significant growth during the fourth quarter of 2022 (Q4 2022).
According to the figures the ICT sector made a contribution of 2.5 percent to the total Gross Domestic Product (GDP) at current prices, in Q4 2022.
The figures show that at constant prices, the ICT sector realized an annual growth rate of 4.6 percent and the sector contributed around P1.6 billion to the economy during the fourth quarter of 2022. “In Q4 2022, the contribution of ICT sector to the economy stood at 2.5 percent of total GDP at both current and constant prices. The ICT sector’s value added at current prices amounted to P1, 633.6 million while at constant prices it amounted to P1, 242.2 million. The sector registered an annual growth rate of 4.6 percent in constant prices,” according to the Botswana Information and Communication Technology recent update by Statistics Botswana. The statistics entity noted that the Postal and Courier Services sector’s value added amounted to P67.2 million in current prices, which constituted 0.1 percent of total GDP in Q4 2022.
Giving an update regarding the performance of other ICT sub sectors Statistics Botswana stated that fixed telephone line subscriptions decreased by 2.3 percent in Q4 2022, from 93,925 subscriptions recorded in Q3 2022 to 91,725. Mobile cellular telephone subscriptions however increased by 0.8 percent in Q4 2022, from 4,315,368 registered in Q3 2022 to 4,348,010. Comparing Q4 2022 to the same quarter of 2021, fixed telephone lines decreased by 30.8 percent while mobile cellular telephone subscriptions went up by 4.5 percent. Both pre-paid and post-paid mobile cellular telephone subscriptions increased in Q4 2022. Pre-paid mobile cellular telephone subscriptions rose by 0.8 percent from 4,149,143 in Q3 2022 to 4,181,783 while post-paid mobile cellular telephone subscriptions increased slightly in Q4 2022 from 166,225 registered in Q3 2022 to 166,227, according to Statistics Botswana.
Total internet subscriptions both mobile internet plus fixed internet subscriptions increased by 3.6 percent in Q4 2022, from 2,875,153 registered in Q3 2022 to 2,977,845. Mobile internet subscriptions went up, registering an increase of 4.5 percent from 2,721,946 subscriptions in Q3 2022 to 2,844,958 in Q4 2022. Meanwhile fixed internet subscriptions decreased by 13.3 percent (from 153,207 registered in Q3 2022 to 132,887 in Q4 2022).
Statistics Botswana stated that mobile money subscriptions have been increasing over the years. In Q4 2022, mobile money subscriptions went up by 1.3 percent, from 1,788.551 registered in Q3 2022 to 1,811,036. Mobile money is a technology that allows customers to receive, store and spend money using a mobile phone. To enjoy the benefits of mobile money, a customer has to register and open an account with a mobile money service provider. Existing mobile money services in Botswana include Smega by BTC, Orange Money by Orange Botswana, Myzaka by Mascom and Poso Money by Botswana Post.
The statistics entity stated that on-net fixed telephone domestic calls (Fixed to fixed telephone calls) traffic went down by 8.0 percent in Q4 2022, from 15.4 million minutes registered in Q3 2022 to 14.1 million and added that off net fixed telephone domestic calls (Fixed to mobile telephone calls) traffic decreased as well in Q4 2022. It went down by 0.6 percent from 23.9 million minutes in Q3 2022 to 23.7 million minutes.
With regard to mobile telephone domestic calls traffic, on-net mobile telephone traffic decreased by
0.8 percent in Q4 2022 while off-net mobile telephone traffic increased by 1.6 percent. While mobile to fixed telephone traffic decreased by 1.1 percent in Q4 2022. International outgoing fixed telephone calls traffic declined by 8.2 percent in Q4 2022, from 1.1 million minutes in Q3 2022 to 1.0 million.
The entity noted that outgoing international mobile telephone calls traffic increased slightly by 0.8 percent in Q4 2022, from 4.1 million minutes recorded in Q3 2022. On-net short message services (SMS) declined by 1.5 percent and off-net SMS traffic also went down by 0.5 percent in Q4 2022, according to figures from the statistics entity.
Business
State owned MDCB comes to Minergy’s rescue
Government owned mining investment firm Mineral Development Company Botswana(MDCB) has agreed to bail out embattled Minergy Coal, and clear its arrears with mining contractor – Jarcon, the Botswana Stock Exchange coal miner said in a circular to the market this week.
In the statement Minergy which operates Masama Coal Mine in Media, near Lentsweletau said it has signed a term sheet for funding offered by its main funder, the Minerals Development Company Botswana (Pty) Ltd.
The facility terms are subject to normal legal counsel review, satisfactory due diligence, final documentation, and the review, acceptance, and execution of the relevant financing agreements by the MDCB and the fulfilment of suspensive conditions.
The funding will be utilised to significantly repay the arrears of the Jarcon trade account as required by the Term Sheet. The statement said Minergy and Mineral Development Corporation intends to finalise and allow the disbursement of funds by no later than 30 June 2023.
The funding will allow Minergy to initially continue operations in a reduced sales environment with the associated reduced-cost initiatives implemented to stabilise the business ahead of ramping up to pre-shutdown levels.
In mid- March Minergy announced the halt of Mining operations at Masama due to what it termed a drastic decline in coal prices which resulted in a cash flow crisis.
It emerged that the infant coal miner owed it’s mining contractor, Jarcon over P80 million in arrears. Jarcon had reached a decision to tool down and let go of some of its employees citing cash flow shortfalls as it sought to demand clarity on outstanding payments from Minergy.
Minergy has previously received funding in hundreds of millions from Mineral Development Company (MDC), another Botswana Government 100 percent owned entity.
MDCB, which is housed under the Ministry of Minerals & Energy, is the wholly owner of Morupule Coal Mine. The relatively new minerals investment company also owns 15 percent of De Beers Group on behalf of Government.
Minergy ’s other state funders are Botswana Development Corporation (BDC), the state owned investment entity, 100 percent owned by Government of Botswana, housed under the Ministry of Trade & Industry.
Combined, BDC and MDC have previously pumped over P300 million debt funding to Minergy to bring Masama coal mine to production and later for expansion.
Minergy incurred a net loss during the year ended 30 June 2022 of P131 151 034 (2021: P106 903 609). As at 30 June 2022 the Group had accumulated losses of P376 420 873 (2021: P245 269 838) and its net liabilities exceeded its net assets by P180 279 583 (2021: net liabilities exceeded its net assets by P56 030 697).
This gave rise to a material uncertainty that casted significant doubt on the Group’s ability to continue as a going concern, and therefore, that it may be unable to realise its assets and discharge the normal course of business.
Significant progress towards stabilizing the business was made during the financial year in mitigating the going concern which included receipt of the final tranche of debt funding, completion of debt restructuring to stabilise the business and successful commissioning of Stage 4 of the Processing Plant (Rigid Screening and Stock Handling section) which allows it to now operate at nameplate capacity.
In addition to this, the ongoing war in Ukraine stimulated high coal prices from the end of the third quarter of FY22, as the energy market and the security of supply came under severe pressure. This led to extraordinary demand, allowing access to previously uncompetitive and uneconomical exports into the seaborne market during the fourth quarter.
Minergy successfully exported coal via Walvis Bay, with two 30 000-tonne vessels dispatched in May and June 2022 on a FOB basis. The Group also exported coal through Maputo via rail to the port, with two trains dispatched in June 2022 on a Free-On-Rail (“FOR”) basis. These events increased sales volume for the financial year by 40%, with record sales achieved in May 2022. These increased sales levels have been maintained post year end.
Business
G4S Botswana gross profit down P12 million
G4S Botswana Limited gross profit for the year ended 31 December 2022 declined by around P12 million, according to the company’s consolidated financial statements released by Botswana Stock Exchange (BSE) this week.
G4S Botswana gross profit declined by P12, 373 000.00 from P51, 289 000.00 recorded for the year ended December 2021 to P38, 916 000.00 for the year ended 31 December 2022.
G4s Botswana provides security services to among others, financial services industry and the services include cash transportation, counting and reconciling cash, sorting of notes for use in ATMs, counterfeit detection and removal, redistribution of cash to bank branches, ATMs and retail customers. The company also collects and processes cash notes within the retail environment.
In the recent financial statements, the BSE listed security services provider noted its revenues and profits were negatively affected by increase in fuel prices and cost of proving security services. “The significant decline in gross profit for the year was as a result of the abnormal price increases on fuel, as fuel expenses increased by 88% for the full year, compared to prior year adding significantly to total cost. Additionally due to the heightened security risk environment, the business invested in enhanced security upgrades to its infrastructure specifically in the cash service line. Investment in live monitoring of all cash vehicles further added to the cost of providing service putting further pressure to total costs.”
The company recently indicated that following the increased national security risks characterized by attacks on cash in transit vehicles, the company was forced to improve security of its vehicles, by adopting the latest technology.
According to the company’s management the significant miss in Gross Profit (GP) largely drives the decline in the profit before tax (PBT) year on year. “Added to the PBT decline is the increase in administrative expenses owing to the normalization of the alarm monitoring and response (AMR) teams wherein from September 2021 Management added back the full crew complement to the AMR response crew structure which had been reduced during 2020 – effectively experiencing the full cost of this change in the whole of 2022.
G4S Botswana management meanwhile noted that its revenue for the period increased by 6.45% driven primarily by good growth in the manned guarding service line and added that the top line growth was despite the contract losses experienced during the period under review primarily because of the new Citizen Economic Empowerment (CEE) legislation. “The Cash service line grew marginally by 4% while the Electronic Security Systems (ESS) remained largely unchanged as it continues to experience intense competition from new entrants particularly in the Alarm monitoring and response (AMR) space.”
G4S Botswana management noted that the company will continue to focus on growing revenue following encouraging increases in revenue quarter on quarter for both the third quarter and fourth quarter of 2022, indicating that revenue lost during the first half of 2022 is systematically being recovered. “We will continue driving the sale of integrated security solutions to ensure that we remain at the forefront of security capability in Botswana. The trading conditions remain challenging with significantly fewer opportunities than in prior years primarily due to CEE legislation. As a response, Management continues to drive its commercial strategy of focusing on industry-specific growth such as the retail growth strategy that has driven revenue growth. The infusion of technology into our service offering has also been successful as a revenue driver. Specific focus for the year is on cost management with driving efficiencies across the business and continued fuel management aimed at managing profitability.”
G4S management noted that the company will continue to focus on improving profitability. “Despite the reduced performance of the company, in lieu of stated reasons, the Board of Directors and Management are confident of the company’s going concern status and will continue to work hard towards improved profitability in the foreseeable future.”