The resurgent Botswana Telecommunications Corporation Limited (BTCL) says its financial results for the full year ended 31st March 2017 will be significantly higher than those reported for the previous full year. The market reacted positively to the news, pushing BTCL stock to its highest level this year.
“The results will also be significantly higher than projections in the prospectus. This is mainly attributable to the favourable trading environment during the period,” the company said in a trading statement signed by Lorato Boakgomo-Ntakhwana, the board chairperson. The announcement by the board of BTCL adds to the raft of good news that have been coming from Megalang House, a turn of events from the tumultuous months that followed after the historic Initial Public Offering (IPO) in April last year.
The oversubscribed IPO ushered in about 47, 125 new investors, representing 65 percent of all registered investors. The BTCL share price debuted at P1 and quickly reached highs of P1.34 on the first weeks of trading but the share price later retreated following litany of negative news. The share price started dropping after the company recorded a once off impairment loss which was larger than expected.
The anticipated loss was more than what BTCL let on in their listing prospectus, something which rattled investors who based some of their investment decisions on the information contained in the prospectus. Further complicating the matter was the fact that it was BTCL’s first loss in more than four years. In the prospectus, the company anticipated losses to be at P128 million due to impairment adjustment amounting to P306 million. However this was not to be as the losses shot up to P371 million as a result of underestimating the impairment exercise performed during the year 2016. The once off impairment amount of P522 million represented a write-down of some of property, plant and equipment due to technology changes.
After the shock drop in profits, and subsequently the huge loss due to impairment, BTCL share price suffered its steepest drop as it went below the IPO listing price. The fall in price spiked a flurry of trading, with some analysts saying that the increase in trading activities could be traced to novice investors who are still to get the hang of how the stock markets work. To mitigate against the distressed stock which was heavily traded, BTCL appointed a market maker to correct the mismatch between buyers and sellers.
It was realised that there was panic selling, particularly amongst novice investors who wanted to exit their positions before they could see the value of their investments eroded. The market maker held off the plummeting stock as the share price remained at 0.85t for more than 2 months despite frequent trading of the shares. The stabilization in the share price was later followed by a positive investor note from BTCL that they are expecting to deliver satisfactory financials later this year for their half year results ended 30 September 2016.
Indeed, the only listed technology and communications company on the BSE went on to deliver a set of strong financials. BTCL in that six months period increased its revenue to P774 million, up by 4 percent. The increase was largely driven by a 4.6 percent increase in sales of goods and services. The highest revenue growth achievements were mainly in the areas of National Telephony which went up by 9 percent, followed by a 6 percent increase in mobile services and an 8 percent surge in data services.
There was also marked improvement in the gross profit which went up by 4.5 percent to P468 million. However, the gross profit was later eroded by a slight increase in total costs. Total costs in the period under review totalled P400 million, a 3 percent increase from the previous corresponding period. While the uptick in total costs was in line with the 2016 prevailing inflation rate, the company’s board and management said the increase in costs calls for more robust cost management initiatives that will ensure long-term growth in net earnings and company value.
In the end BTC declared a profit of P88 million, an impressive increase of 19 percent from the previous interim results. BTC further announced that it remains well capitalised to fund its capital expenditures from internal resources. The company has grown its cash reserves by 23 percent to P502 million, putting it in an enviable position considering that the company has no large borrowings.
Now with the latest announcement projecting higher profits for this year, BTCL is expected to report profit way above its 2017 projected profit after tax of P115 million. The increase in profit will be on the back of improved revenues as well as declining total expenditure. The news of the anticipated higher profit on Wednesday was welcomed by shareholders as the share price went up by 0.8 percent, extending the capital gains that have delighted BTCL investors in recent months.
The uptick in the share price continues BTCL’s gravity defying stunts on the BSE this year. From trading below its IPO price last year, the stock has rebounded spectacularly in the last five months to become one of the hottest stocks to have in your portfolio. The rebound started shortly after BTCL appointed a market maker and their pleasing results in the interim.
The BTCL stock is currently leading the rally on the local bourse, helping to narrow down losses in the benchmark index. The hottest stock has so far surged by 31 percent to trade at P1.31. Shareholders who bought while the stock was at its lowest below the IPO at 0.85t are looking at huge returns of 54 percent, while those who bought at the IPO price will still be impressed by the 31 percent premium.
Other than share price gains, the BTCL shareholders are due for handsome returns in the form of dividends. Earlier this year, BTCL announced its new dividend policy which prescribes a dividend payout of 50-65 percent of earnings subject to the financial position of the company, investment strategy, future capital requirements, availability of cash and other factors the board may consider.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.