BTC gets long term buy verdict
Business
Motswedi Securities’ has released a thorough assessment of the Botswana Telecommunications Corporation Limited (BTCL) issuing a Long Term Buy recommendation on BTCL at the current price.
The Research team at Motswedi Securities notes that the BTCL growth strategy is centred on leveraging its fixed, mobile and convergent products and services potential. He says the strategy is intended to leverage BTCL’s unique market position as the only fixed and mobile network operator in Botswana by creating competitive advantages for the company through the provision of traditional fixed and mobile broadband, information and content capabilities. It is interesting to note that BTCL is trading at a 35% discount to its NAV. (Current price – P1.47).
“With a PE of 6.8x against the market average of 16.9x and a PBv of 0.8, we still maintain a LONG TERM BUY recommendation on BTCL at the current price.”
WHERE IS THE GROWTH STORY?
According to the report BTCL has copper access network making it the only operator with the capacity to offer ADSL (Asymmetric Digital Subscriber Line Service). ADSL is a data communication service that enables faster data transmission over copper telephone services than convectional voice and modem can provide. BTCL could leverage on this competitive advantage by offering this ADSL product through its copper network, thereby increasing data sales.
Further the Motswedi Securities team notes that the Wider Network footprint and report that BTCL through its BeMobile unit has the widest mobile coverage particularly in remote areas because of its extensive mobile coverage. No other operator has assets deployed as widely across both fixed and mobile services space as BTCL. The mobile network can leverage on this extensive coverage to grow its market share. The researchers also recognize BTCL’s Strong brand recognition and perception, especially in the fixed line business.
The company’s Increased Market Share also speaks to the growth story. According to the report, the BeMobile business is less than 9 years old but already it has gained a notable market share of around 17% which is commendable in this environment dominated by two other giants.
“BTCL is the sole provider of fixed telephony, with this segment being the second driver of revenue, contributing 32%. It is interesting to note that the fixed telephony segment has shown a slight but constant growth over the years in terms of revenue and is expected to continue holding its ground in the short to midterm mainly due to increased usage from the corporate and the government. Having said this, we are equally aware of the decline of this business on a global scale on the long term.”
The Motswedi Securities team is convinced that the BTCL runs a highly profitable business with a strong dividend distribution. It notes that BTCL bounced backed into profitability with all the profitability ratios growing exponentially. The positive numbers are expected to continue going into the future. Further, the researchers point out that Product innovation is expected to continue improving due to the partnership with Vodafone, one of the world’s leading communications services providers. Another plus for BTCL is the fact that the government remains the majority shareholder with a 51% stake in BTCL:
“The government may consider reducing its stake in BTCL to inject both liquidity, innovation and management skills that would better serve the country, investors, the entity and all its stakeholders. This would allow the company the swiftness it needs to remain competitive and profitable. The government can have both control and strategic influence in order to effect social and public policy, while maintaining a minority shareholding, with special voting rights (class A shares). This also promotes better price discovery, improved market liquidity, strategic alliances and partnership, improved competition and a diversified shareholder base and all these will feed positively into BTCL bottom line.”
THE POSSIBLE CHALLENGES
The Motswedi Securities research team has not ignored the possible challenges to the BTCL beautiful story. They acknowledge that BTCL operates in a highly competitive and mature market with intense price competition. Tele density level is above 171% and the only way for BeMobile to expand its market share from the current 17% is to take away subscribers from other networks. This might be a tall order given that the other two giant mobile networks will certainly do anything to protect their territories.
Another factor is the increased competition in the telecoms sector within the country as a result of market liberalisation and this has led in some instances BTCL losing some of its key clients to competitors. The researchers further indicate that Liquid Telecom will also be launching a new telecoms network provider with extensive reach across Botswana soon.
“The business is a high volume business with profitability very sensitive to variation in margins. This is because, BoFinet determines the margins available to network operators and in some cases BTCL may not be able to pass on to the retailer any margin compression enforced by BoFinet and this will eat on margins and profitability,” write in the BTCL assessment report.
Expected decline in Fixed Telephone revenue in the future could also add to the downside of BTCL, they say. According to the Motswedi Securities researchers, the Regulatory risk still remain elevated. BOCRA has started implementing a Pricing Framework which seeks to align to cost, retail prices for mobile voice and mobile broadband.
“Implementation of the Framework has been phased over three years and has already began. The implementation has started with the removal of mobile Termination Rates and differences in prices between the off-net premiums (between networks) and on-net rates. This may impact negatively on revenue from the sector at large and by extension BTCL,” reads the report.
Meanwhile trading of the stock is currently restricted to citizens or wholly owned citizens companies. The Motswedi Securities team argue that this may impact on liquidity and price discovery. Further, they say, the government may consider Market Liberalisation and opening up the market to international investors so as to give BTCL a wider brand exposure and investor base.
STRONG FINANCIAL RESULTS
BTCL FY Financial results for the year ended 31 March 2017 showed a 9% growth in sales driven by growth in fixed, mobile and data sales. Mobile revenues increased by 5% and is the biggest contributor to total revenue at 37%, followed by Fixed Telephony Revenues at 32% and Data services revenue at 29%. “We expect the contribution of Fixed telephony to gradually decline in the future in preference of mobile phones which offers more convenience,” the Motswedi Securities researchers observe.
GP margins improved to 58% from 51%. Total cost were trimmed by 26%, while no impairment were recognised for the year following an impairment assessment exercise carried out at year end. EBITDA grew strongly by 40% to P369mn (FY16: P263mn) with EBITDA margin improving to 23% from 18%. PAT bounced back strongly into the positive territory at P237mn from a loss of P371mn the previous year and this also pushed the net profit margin to 15% from -25%.
“BTCL growth strategy is centred on leveraging its fixed, mobile and convergent products and services potential. The strategy is intended to leverage on BTCL’s unique market position as the only fixed and mobile network operator in Botswana by creating competitive advantages through the provision of traditional fixed and mobile broadband, information and content capabilities. It is interesting to note that BTCL is trading at a 35% discount to its NAV. (Current price – P1.47). With a PE of 6.8x against the market average of 16.9x and a PBv of 0.8, we still maintain a LONG TERM BUY recommendation on BTCL.”
TELECOMMUNICATION MARKET OVERVIEW
The telecommunications market is dominated by the three operators which operate under Public Telecommunications Operator (PTO) licence; namely: BTCL, Mascom and Orange Botswana. The other major player in the market is Botswana Fibre Networks (BoFiNet), which was issued with an interim licence to provide wholesale services beginning 1 April 2013. BoFiNet started offering services in October 2013.
In addition, Private Telecommunications Network Licences (PTNL) have been issued to entities to build private networks for internal business use. Although the PTO licence allows the operators to offer both mobile and fixed telephony services and products, the industry still has 3 players with Mascom and Orange offering mobile telephony services only including mobile Internet and value add services, while BTCL provides both the fixed and mobile telephony services. This includes data network services, providing access and connectivity.
Business
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Business
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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Business
Moody’s Reaffirms African Trade Insurance’s A3 Rating & Revises Outlook to Positive
Moody’s Investors Service (“Moody’s”) has affirmed the A3 insurance financial strength rating (IFSR) of the African Trade Insurance Agency (ATI) for the fifth consecutive year and changed the outlook from stable to positive.
Moody’s noted that the change in outlook to positive reflects the strong growth in ATI’s membership base – that has resulted in improved portfolio diversification, strengthened capital adequacy, and the good profitability despite the challenging operating environment. In addition, ATI benefits from its preferred creditor status (PCS) amongst sovereign member states which protects it from the risk of default by member sovereigns through securing recoveries against claims paid on guarantees.
The strong membership and equity growth are some of the key considerations for the consistent reinstatement of ATI’s A/Stable rating by Standard & Poor’s and Moody’s rating, over the years. Also supporting the rating affirmation are; consistent improvement in financial performance, commitment of its shareholders who continue to uphold the preferred creditor status, its high quality and conservative investment portfolio as well as strong relationships with a number of global reinsurers that provide significant risk-bearing capacity.
With the change in outlook to “positive”, ATI is now better placed to provide enhanced support to its member countries, attract additional shareholding and grow its portfolio. The positive outlook is an indication that if ATI continues to demonstrate its strong underwriting performance and ability to recover claims under the preferred creditor arrangements, among other factors, an upward pressure towards an upgrade may be generated. The Moody’s press release can be accessed from here
Commenting on the rating, Africa Trade Insurance Chief Executive Officer Manuel Moses said: “This positive revision is in line with our 2023 – 2027 strategic objectives in which we set to improve our rating outlook to positive in the first year, and achieve an upgrade of at least “AA”/Stable rating by both Moody’s and S&P within this Strategic Plan period. We aim to achieve this by doubling our exposures and increasing our capital to more than USD1 billion.”
ATI’s mandate is to provide trade-credit and political risk insurance, as well as other risk mitigation products to its member countries and related public and private sector actors. These insurance products not only directly encourage and facilitate foreign direct investment as well as local private sector investment in our member countries, but also contribute to intra- and extra-African trade.
About The African Trade Insurance Agency
ATI was founded in 2001 by African States to cover trade and investment risks of companies doing business in Africa. ATI predominantly provides Political Risk, Credit Insurance and, Surety Insurance. Since inception, ATI has supported US$78 billion worth of investments and trade into Africa. For over a decade, ATI has maintained an ‘A/Stable’ rating for Financial Strength and Counterparty Credit by Standard & Poor’s, and in 2019, ATI obtained an A3/Stable rating from Moody’s, which has now been revised to A3/Positive.