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Letshego in another share-buy-back

Letshego Holdings Limited says it will seek shareholders permission to buyback the company’s shares of up to 10 percent in efforts to increase shareholders’ value. On Monday, the leading micro lender released a proposed share buy-back mandate that will see the company retaining or possibly cancelling all of the repurchased shares.


“The Directors of Letshego propose to seek a new Share Buy-back Mandate from the Shareholders to purchase up to a maximum of ten percent (10%) of the stated share capital of the Company by way of on-market Share Buy-back and pursuant to that, retain those shares as Treasury Shares up to five per cent (5%) of the stated share capital of the Company and cancel the rest of the shares and effect a Reduction of Capital on the shares purchased,” the company stated in the document detailing the proposed share buy-back.


The shareholders are expected to approve the proposed share buy-back mandate during the company’s annual general meeting on the 24th of May. Amongst the resolutions to be approved is that the purchase of shares should not exceed ten percent of the stated capital of the company. Moreover, shareholders are requested to approve the special resolution that authorises the company to reduce its stated capital as may be determined by the board of directors from time to time.


With an issued share capital of 2, 144, 045, 143 shares, Letshego proposes purchasing up to ten percent of that, meaning that the company is willing to buy up to a maximum of 214,404, 514 shares. Upon buying the ten percent of stated capital, 107, 202, 257 shares will be reduced from the stated capital, leaving the company with the stated share capital of 2, 036, 842, 886 shares. Alternatively, if the board decides to cancel the whole of the purchased ten percent of the stated share capital, it will mean Letshego will wipe as much as 214, 404, 514 shares, leaving the company with 1,929, 640, 629 shares.


In the proposed share buy-back mandate, Letshego intends to buy the shares from shareholders on the Botswana Stock Exchange (BSE) using one or more duly licensed stockbrokers appointed by the company. The repurchase of the shares will be spread over time, marked by one or several transactions depending on the availability of funds and shareholders who are willing to sell their stake back to the company. Furthermore, while the purchase price of the shares has not been explicitly stated, the company’s directors have revealed that the purchase price will be determined by the Letshego committee mandated for the purposes of effecting the share buy-backs.


The proposed purchases of shares will be effective immediately upon approval of the mandate by shareholders and will continue to be in force until the date of the next annual general meeting is held or required to be held by law. The share buy-backs may be cancelled if shareholders of the company revoke or vary the date on which purchases and acquisitions of shares are carried out to the full extent mandated.


Letshego says it will either tap into its internal cash reserves or source external funds to finance the repurchase of shares. The type of funding will be determined by the funding model which will ensure that the share buy-back mandate does not significantly impact the working capital requirements, financial flexibility or investment ability of Letshego.


The latest proposal by Letshego’s directors for shareholders to approve the share buy-back mandate comes on the heels of another share buy-back program that was initiated and concluded last year. In the previous annual general meeting, shareholders approved the company’s request to repurchase ten percent of shares which constituted a maximum limit of 218, 490, 166 shares and subsequently cancelling the repurchased shares. Pursuant to that mandate, the company only repurchased 52, 782, 546 of those shares, representing 2.41 percent instead of the envisaged 10 percent.


Letshego will be hoping to appeal to shareholders who have become frustrated with the company’s stock price that has been in decline in the last two years. By buying back the shares, Letshego says this will improve shareholder value by leveraging on its balance sheet to improve returns on equity and earnings per share.

 

Moreover, Letshego hopes to stoke positive investor sentiments as share buy-backs can be seen as a sign that a company has excess money, and therefore attracting other investors to invest in Letshego which could improve the share price. However, the downside of share buy-backs is that the company is forced to use some of the company’s cash reserves and borrowings to buy back shares instead of using the money in optimizing its operations.


Letshego’s profit after tax in 2016 was P669.7 million, down by 12.8 percent from the previous year’s profit. Letshego with its P7.9 billion in total assets, has large cash reserves amounting P529 million. Assuming the current share price of P2.27, Letshego will have to spend around P486.7 million of its cash to buy 10 percent of the stated share capital of the company. The sufficient cash reserves will save Letshego from further borrowings. The company’s existing debts amount to P3.4 billion.


Letshego which is listed on the BSE currently has a market capitalization of P4.8 billion, which is expected to decrease after the share buy-back is completed. The public shareholding spread of Letshego is currently at 74.59 percent of stated share capital. If the share buy-back is carried out in full, the public shareholding spread will be reduced to 64.59 percent since the company is prohibited from knowingly buying shares from its own directors, CEO of the company or major shareholders. Letshego’s major shareholder is Botswana Insurance Holdings Limited (BIHL) with a 23.7 percent stake.  If Letshego goes ahead and cancel the repurchased shares, the reduction in share capital will increase percentage shareholding of existing shareholders and also increase their voting rights.


On Wednesday, two days after the share buy-back mandate was made public, Letshego’s shares gained 2t or 0.8 percent to trade at P2.27, signalling that shareholders approve of the share buy-back. Furthermore, shareholders will seek to drive up the stock price so that if the share buy-back is approved the purchase price will be high. Letshego’s shareholders are seeking to recoup their losses following string of losses in the stock price. Letshego share price was down by 5.7 percent in the first quarter of the year but has since made advances, bringing down its loss to just about 1.3 percent. However the stock has a long way to go to recover the 20 percent share price loss recorded in 2016.

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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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